In The New Oil Order, Schlumberger Is A Secular Winner

Following the 11 percent decline in the share price of Schlumberger Limited. SLB since April 20, Goldman Sachs’ Waqar Syed believes than any further pullback in the stock would present a buying opportunity, especially given the improved oil outlook for 2H16.

Syed maintained a Buy rating on the company, with a price target of $94. The analyst believes that there could be 29 percent upside to the stock.

Best Positioned

Syed believes that Schlumberger is “is best positioned for the New Oil Order,” given the company’s exposure to “incremental sources of oil supply, such as the U.S. Shales, Mideast OPEC and Russia.

The analyst also noted that Schlumberger’s technological advantage and integrated product offerings make the company a leader in achieving E&P goals, including reservoir productivity enhancement, brownfield development and offshore project cost deflation.

Syed pointed out that the company’s balance sheet offers operational and financial flexibility, while historically, Schlumberger has outperformed the S&P500 when oil prices rise. The analyst expects EPS CAGR of 64 percent during 2016-2018.

Positive Catalysts

Syed also mentioned that there were several positive catalysts in the offing for the company, such as “positive updates on the Cameron integration process and revenue/cost synergies.”

Strength in oil prices and stabilization of the rig count, expected in 2Q16, followed by a gradual recovery in U.S. completion activity in 2H16, are also expected to act as positive catalysts, as are “sharper increases in US rig activity in 2017 and new deepwater project FIDs.”