Shares of Schlumberger Limited. (NYSE: SLB) have declined around 70% from their 2014 peak and the stock valuation versus the S&P 500 is at a 20-year low, offering a compelling entry point, according to Morgan Stanley.
Morgan Stanley’s Connor Lynagh upgraded Schlumberger to Overweight, while keeping the price target unchanged at $51.
Schlumberger’s outlook had improved, Lynagh said in the upgrade note in which he cited three reasons for this view.
Firstly, the company has an enhanced focus on returns under its new CEO Olivier Le Peuch, which could drive growth in earnings and free cash flows even without higher oil prices or service price improvements, Lynagh mentioned.
As the second reason, the analyst cited the shift in global capital expenditure dynamics. He explained that much of Schlumberger’s lackluster growth had resulted from a significant decline in capital expenditure in offshore markets, which is the company’s strongest market.
The analyst said that the dynamics had shifted and that offshore markets could deliver higher growth than North America.
Thirdly, Lynagh mentioned that the stock has “downside support” from the company’s dividend yield, while naming the stock as “our top pick in the sector.”
Shares of Schlumberger had surged more than 4% to $37.73 at the time of publishing on Tuesday.
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