Schlumberger Ltd Quarterly Valuation – June 2014 $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 5 Highest Dividend Yields Among Undervalued Companies for the Enterprising Investor.  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 specific look at how Schlumberger Ltd (SLB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Schlumberger N.V. (Schlumberger) is the supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry. The Company’s segments include Reservoir Characterization Group, which consists of the principal technologies involved in finding and defining hydrocarbon deposits; Drilling Group, which consists of the principal technologies involved in the drilling and positioning of oil and gas wells, and Production Group consists of the principal technologies involved in the lifetime production of oil and gas reservoirs and includes Well Services, Completions, Artificial Lift, Well Intervention, Subsea, Water Services, Carbon Services and the Schlumberger Production Management field production projects. SLB Chart

SLB data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

MG Value $90.20
MG Opinion Overvalued
Value Based on 3% Growth $68.18
Value Based on 0% Growth $39.97
Market Implied Growth Rate 8.26%
Net Current Asset Value (NCAV) -$1.04
PEmg 25.01
Current Ratio 2.13
PB Ratio 3.83

Balance Sheet – 3/31/2014

Current Assets $25,353,000,000
Current Liabilities $11,899,000,000
Total Debt $11,120,000,000
Total Assets $66,717,000,000
Intangible Assets $19,545,000,000
Total Liabilities $26,713,000,000
Outstanding Shares 1,302,000,000

Earnings Per Share

2014 (estimate) $5.51
2013 $5.10
2012 $4.06
2011 $3.51
2010 $3.38
2009 $2.61
2008 $4.42
2007 $4.20
2006 $3.01
2005 $1.81
2004 $0.85

Earnings Per Share – ModernGraham

2014 (estimate) $4.70
2013 $4.11
2012 $3.61
2011 $3.46
2010 $3.47
2009 $3.41

Dividend History
SLB Dividend Chart

SLB Dividend data by YCharts


Schlumberger Limited qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the high PEmg and PB ratios, but the company passes all of the Enterprising Investor’s requirements. As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities. As for a valuation, the company appears to be overvalued after despite growing its EPSmg (normalized earnings) from $3.47 in 2010 to an estimated $4.70 in 2014. This level of demonstrated growth does not support the market’s implied estimate of 8.26% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out the previous ModernGraham valuations of Schlumberger Limited (SLB) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Schlumberger Limited (SLB)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Schlumberger Limited (SLB) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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