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Why Is Schlumberger’s Stock Price Bullish?

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Schlumberger versus peers and the industry

Schlumberger Limited (SLB), the largest OFS (oilfield equipment and services) provider by market capitalization, had a steady run in the stock market in 2016. On December 1, Schlumberger was trading at $84.61. It was ~25% higher than its price at the beginning of 2016.

The VanEck Vectors Oil Services ETF (OIH), an ETF tracking index of 25 OFS companies, has increased 24% since the beginning of 2016. Weatherford International (WFT), Schlumberger’s smaller market cap peer, fell 41% during the same period. Schlumberger accounts for 18.3% of OIH. Read Weatherford Infuses Capital into Its Leveraged Balance Sheet to learn why Weatherford decided to raise its capital.

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What does Schlumberger’s stock price movement tell us?

In the past year, Schlumberger’s share price trended up. Schlumberger’s revenues stayed steady in 3Q16 and 2Q16 after falling in the previous three quarters. Its net income also improved in 3Q16, after a fall in the previous quarter. Since the third week of January 2016, when Schlumberger’s price reached its one-year low, it has recovered 41%.

The crude oil price rise in 2016 partially explains Schlumberger’s steady run in 2016. The West Texas Intermediate crude oil price recovered 39% year-to-date. On November 30, the crude oil price spiked after OPEC (Organization of the Petroleum Exporting Countries) and Russia entered into a deal to cut crude oil production. Higher crude oil prices can lead to higher energy production, which will have an immense impact on OFS companies like Schlumberger. Read OPEC Cuts Production: How Will Crude Oil React? to learn why crude oil prices are increasing.

Schlumberger’s moving averages

On December 1, Schlumberger’s share price was at an ~6% premium to its 50-day moving average. It’s trading 9% above its 200-day moving average.

Moving averages show a smoother trend following the stock’s price movement. A 50-day moving average is a short-term moving average, while a 200-day moving average shows a long-term trend. Schlumberger’s short-term moving average crossed over the long-term moving average in April 2016. Schlumberger’s share price has also stayed above it long-term moving average since the third week of May 2016. It only went above the short-term moving average in November 2016. It shows that Schlumberger’s share price has bullish momentum.

In this series, we’ll analyze why returns from Schlumberger’s share price have been steady. We’ll discuss Schlumberger’s top line and bottom line growth, its balance sheet, free cash flow, and industry growth drivers in this series. We’ll start with management’s comments in the next part.

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