Shares of Schlumberger Limited. (NYSE: SLB) are down about 50 percent over the past year and trading at a compelling valuation that offsets current concerns, according to Stifel.
Stifel's Stephen Gengaro upgraded Schlumberger from Hold to Buy and maintained a $50 price target.
The bullish case for Schlumberger's stock is based on six unique factors, Gengaro wrote in a note. These include:
- Pricing headwinds continue to remain, but rising activity over the next few years should lift Schlumberger's top line and drive margin expansion.
- The company will limit Schlumberger Production Management (SPM) investments by $200 million in 2019 and focus on enhancing ongoing projects along with monetizing a portion of the SPM portfolio.
- The monetiziation of SPM assets should result in free cash flow improvements in 2019 and 2020, which could serve as a catalyst for the stock as investors seek "strong free cash flow stories" in oil services.
- The stock's 5.7-percent dividend yield looks "secure" based on a favorable free cash flow outlook and first-hand discussions with management.
- COO Olivier Le Peuch is likely to assume the CEO title within the next six months to eight months.
- Shares are trading at a "very compelling" valuation of eight times 2020 EBITDA, which is near the low-end of the normalized range of seven to 13 times.
Shares of Schlumberger were trading higher by 1.5 percent to $35.60 Friday morning.
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