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Schlumberger Limited Message Board

  • cmi_or_die cmi_or_die Feb 29, 2012 6:34 PM Flag

    Growth Notes and Bottoming Outlooks

    Schlumberger (SLB)

    Growth Notes and Bottoming Outlooks

    4Q11 points to growth and less competitive overhang: 4Q11 results
    were un-dramatic, yet elements to like included (1) optimism regarding
    seismic tightening, (2) an apparent uptick in land operations including
    Mexico, Algeria and Libya (about all of which we remain concerned for 2012
    but may have to acknowledge near term prospects for peers as well), (3)
    solid Angola (including pre-salt) activity and (4) the suggestion that few large
    tenders are coming, which should temper competitive pricing chatter. We
    lower estimates again on U.S. pricing caution, but we sense that downward
    revisions for the big 4 are ending, barring an unexpected collapse in U.S.
    outlook. SLB remains in solid command of its business, valuations relative to
    the market are reasonable and the cyclical upturn looms large. Maintain OP.

    Lowering estimates & TP to $92 from $99: We lower our 2012 EPS
    estimate to $4.55 from $4.70 and our 2013 EPS estimates to $5.75 from
    $6.00. The changes are due in large part to lowering pressure pumping
    pricing by 10% yr/yr versus 5% previously. See Exhibit 1. We decrease our
    12-month TP to $92 from $99 on a slower ramp in earnings without change
    in the cost of growth; our TP remains DCF-derived and uses a discount rate
    of 11% and a terminal growth rate of 7%.

    Relatively expensive versus peers, but not so versus the market: SLB
    shares are trading at 16.2x 2012E EPS, a 91% premium to HAL and 78% to
    BHI and we do find relatively greater upside in BHI and HAL. But we note (1)
    our FCF outlooks for all three companies as well as some assumed “fade” in
    returns in the U.S. over time imply a sustained higher than average premium
    multiple for SLB — at our TPs, SLB shares would be trading at 17.2x our
    2013 EPS estimate vs. HAL at 10.5x and BHI at 11.2x — and (2) we see
    value in SLB relative to the S&P — SLB shares are trading at 118% of 2012

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