It's still o.k. to like Schlumberger

Posted Jun 11th 2008 6:29PM by Joseph Lazzaro
Filed under: Schlumberger Limited (SLB), Stocks to Buy

Readers of this space know that one argument forwarded here is that in the era of elevated energy prices the oil/natural gas services sector is likely to remain strong for the foreseeable future, barring the discovery of cheap, widely-available, alternative energy. And among oil/natural gas services companies, Schlumberger is worth an evaluation.

Oilfield services company Schlumberger (NYSE: SLB) (pronounced: "shlum-bur-ZJAY") is likely to benefit from growing demand for oilfield services technology, particularly in the high-technology-dependent Middle East, Africa and Eastern Europe regions.

Further, although North American margins have narrowed somewhat to-date in 2008, international margins remain large. Overall, in 2008 analysts see SLB's margins totaling 28% -- still a very healthy figure -- with revenue growth of 12-14% for 2008, and 16-20% for 2009.

Additional positives: Look for Schlumberger to continue to register solid revenue gains in the Eastern Hemisphere, as the company concentrates on higher-growth regions. The Reuters F2008/F2009 EPS consensus estimates for SLB are $4.80/$5.88.

The risks? Analysts are keeping an eye on a possible decline in oil/gas exploration budgets, and overall production activity, as reductions here would affect SLB's results. Analysts are also monitoring Schlumberger's skilled labor costs.

The First Call mean rating for SLB is: Buy [23 firms]. Mean 2008 target: $121 [high: $145, low: $105].

Stock Analysis: Schlumberger is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from SLB's shares. Sell / Stop Loss: $77.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Tags: emerging markets, oil services, Schlumberger, SLB