The Great Schlumberger Debates

In a report issued Friday, analysts at FBR & Co. looked into Schlumberger Limited. (NYSE: SLB), reiterating an Outperform rating and $102 price target. The firm presented three major debates in relation to the company.

1) Will the stock's historical safe haven status deliver over this global downcycle?

FBR believes that the stock, once again, offers a superior risk/reward profile heading into a global downcycle since: “(1) relative defensive appeal has been augmented by HALs risky pending acquisition status; (2) margins have the most potential to positively surprise due to continued expected new technology traction, share gains, and internal improvements;” and (3) the company holds leading positions in a handful of international markets, which are expected to prove the most resilient (e.g., Saudi Arabia, UAE, Argentina).

2) Will Schlumberger sustain, if not accelerate, its recent share gain uptrends?

The analysts believe that Schlumberger should be able to continue to increase its share across diverse geographies. In North America, they see the company as one of the potential winners “from a secular demand evolution toward (1) ‘rubbelization,’ a hydraulic fracturing approach that economically favors, if not physically requires, significant logistical and supply chain capabilities; and (2) more efficient, precise completion (…) and production optimization technologies and techniques.”

Internationally, they see Schlumberger benefiting from “not only a similar technology adoption and application uptrend, but also a shift, which it is strategically fostering, toward integrated solutions.”

Finally, globally, they expect the company to receive share reallocated away from the Halliburton Company (NYSE: HAL)-Baker Hughes Incorporated (NYSE: BHI) combination post closure.

3) Is Schlumberger willing and able to deploy its balance sheet to create value?

With its latest financial results, Schlumberger reaffirmed both its capacity and intention to recurrently return vast amounts of capital to shareholder. Having ended the year with cash and equivalents of $3.86 billion and a net debt to total capital ratio of barely 18 percent, the company announced a 25 percent increase in its regular quarterly dividend, to $0.50, “reaffirmed the plan to expend its stock buyback program by the end of 2015, and indicated it expects to identify and capture attractive M&A opportunities over the course of the downcycle.”