Schlumberger Longs Hoping Stellar Management Can Brace Through Sector's Storm
Schlumberger Limited (NYSE: SLB) shares have turned back to the downside after a nice 30 percent bounce in the early part of 2015. The company's fundamentals are holding up relatively well given the difficult macro environment for energy names.
However, sometimes the bearish sector influences can be more powerful than an individual company's strong fundamentals and executive leadership. Let's take a look at the fundamentals and technicals of Schlumberger to get an idea of what may be in store for Schlumberger longs.
What The Bulls See
- An attractive 2.3 percent annual dividend yield
- Attractive valuation metrics: An enterprise value of $116.41 billion versus a market capitalization of only $110.05 billion, a price-to-sales ratio of 2.31 and a price-to-book ratio of 2.92.
- Net profit margins of 10.13 percent that spin off approximately $7.81 billion in positive levered free cash flow annually.
- Strong management effectiveness ratios: A return-on-assets of 8.66 percent and a return-on-equity of 13.05 percent.
- Some good balance sheet metrics: A debt-to-equity ratio of 33.77 percent and a current ratio of 1.61.
What The Bears See
- A P/E ratio of roughly 23 versus estimated revenue and EPS growth rates for the next year of 4.7 percent and 10.3 percent, respectively.
- $6.8 billion in cash equivalents versus total debt of $12.79 billion.
The Technical Take
Technicians note that Schlumberger shares may now be in the early stages of the "C" wave of a larger "ABC" downside correction with an eventual target of just below $58. Short-term potential support exists, however, at $84.91, $80 and $75.60. If the bulls can hold their ground at any of those levels and subsequently push the stock up through the $95.13 level, the bearish technical set-up would be negated and higher prices would become a likelihood instead of a dream.
Good balance sheet, good management, positive cash flows and cheap valuations. Normally, that's all one would have to hear in order to pull the trigger on the long side for a stock. However, with crude oil showing sins of declining once again, the bullishness towards all energy stocks has been tempered.
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