Oil & Gas Stocks

Schlumberger Ltd Valuation – February 2016 $SLB

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Schlumberger Ltd (SLB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Schlumberger N.V. is a supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry. The Company operates in the oilfield service markets through three Groups, which include Reservoir Characterization Group, which consists of the principal technologies involved in finding and defining hydrocarbon resources; Drilling Group, which consists of the principal technologies involved in the drilling and positioning of oil and gas wells, and Production Group, which consists of the principal technologies involved in the lifetime production of oil and gas reservoirs and includes Well Services, Completions, Artificial Lift, Well Intervention, Water Services and the Schlumberger Production Management field production projects.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of SLB

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $88,988,549,979 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.91 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -32.92% Fail
6. Moderate PEmg Ratio PEmg < 20 25.22 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.50 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.91 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.13 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

SLB value chart February 2016

EPSmg $2.80
MG Growth Estimate -3.55%
MG Value $3.92
Opinion Overvalued
MG Value based on 3% Growth $40.55
MG Value based on 0% Growth $23.77
Market Implied Growth Rate 8.36%
Current Price $70.54
% of Intrinsic Value 1798.25%

Schlumberger Ltd does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and poor PEmg ratio.  The Enterprising Investor is concerned by the level of debt relative to the net current assets, and the lack of earnings growth over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $3.66 in 2012 to an estimated $2.80 for 2016.  This level of earnings growth does not support the market’s implied estimate of 8.36% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Stage 3: Information for Further Research

SLB charts February 2016

Net Current Asset Value (NCAV) -$4.33
Graham Number $33.42
PEmg 25.22
Current Ratio 1.91
PB Ratio 2.50
Dividend Yield 2.69%
Number of Consecutive Years of Dividend Growth 0



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Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Total Current Assets $26,912,000,000
Total Current Liabilities $14,121,000,000
Long-Term Debt $14,442,000,000
Total Assets $68,005,000,000
Intangible Assets $20,174,000,000
Total Liabilities $32,372,000,000
Shares Outstanding (Diluted Average) 1,261,100,000

Earnings Per Share History

Next Fiscal Year Estimate $1.75
Dec2015 $1.63
Dec2014 $4.16
Dec2013 $5.05
Dec2012 $4.10
Dec2011 $3.67
Dec2010 $3.38
Dec2009 $2.59
Dec2008 $4.45
Dec2007 $4.20
Dec2006 $3.01
Dec2005 $1.82
Dec2004 $1.02
Dec2003 $0.33
Dec2002 -$2.00
Dec2001 $0.91
Dec2000 $0.64
Dec1999 $0.33
Dec1998 $0.91
Dec1997 $1.24
Dec1996 $0.85

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.80
Dec2015 $3.45
Dec2014 $4.27
Dec2013 $4.13
Dec2012 $3.66
Dec2011 $3.52
Dec2010 $3.47
Dec2009 $3.41
Dec2008 $3.52
Dec2007 $2.72
Dec2006 $1.60
Dec2005 $0.74
Dec2004 $0.19
Dec2003 -$0.14
Dec2002 -$0.19
Dec2001 $0.74
Dec2000 $0.70

Recommended Reading:

Other ModernGraham posts about the company

Schlumberger Limited Valuation – October 2015 Update $SLB
Schlumberger Limited Analysis – July 2015 Update $SLB
Schlumberger Limited Quarterly Valuation – April 2015 $SLB
Schlumberger Limited Quarterly Valuation – January 2015 $SLB
13 Companies in the Spotlight This Week – 10/4/14

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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