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What Schlumberger’s Historical Valuations Suggest

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Schlumberger’s PE trend

On March 29, Schlumberger’s (SLB) stock price was 4.0% lower than on December 29, 2017. March 29 was the last trading day of SLB’s first quarter. In the first quarter, SLB’s adjusted earnings were negative. So, its price-to-earnings (or PE) multiple wasn’t meaningful in the first quarter.

In fiscal 2017, SLB’s PE multiple was very high as a result of nominal adjusted earnings. In fiscal 2016, Schlumberger’s PE multiple wasn’t meaningful as a result of negative adjusted earnings.

The forward PE multiple indicates the sell-side analysts’ consensus estimate of earnings for the next 12 months. Schlumberger’s forward PE multiple is positive and is lower than its 2017 PE multiple, indicating positive and improved earnings in the next 12 months.

Schlumberger comprises 14.3% of the iShares US Oil Equipment & Services ETF (IEZ). IEZ tracks an index composed of US equities in the oil equipment and services sector. Since March 29, IEZ increased 19.0% until May 24.

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Price-to-cash-flow multiple

From December 29, 2017, to March 29, 2018, SLB’s stock price decreased, as shown in the chart above. SLB’s cash flows also decreased during the same period, but they couldn’t offset the stock price’s fall.

In effect, the price-to-cash-flow (or PCF) multiple deflated in the first quarter compared to fiscal 2017. SLB’s forward PCF is marginally lower compared to the first quarter, which reflects analysts’ expectations of marginally higher cash flow in the next 12 months.

Schlumberger’s EV-to-EBITDA trend

In the first quarter, SLB’s enterprise value (or EV) decreased as its stock price declined compared to 2017. Its adjusted EBITDA increased during the same period.

Schlumberger’s historical valuation, expressed as its EV-to-EBITDA multiple, decreased in the first quarter compared to 2017. As shown in the chart above, the first quarter EV-to-EBITDA multiple is higher than the past eight-year average.

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Forward EV-to-EBITDA multiple

Schlumberger’s forward EV-to-EBITDA multiple for the next 12 months is lower than its first-quarter EV-to-EBITDA multiple. This reflects analysts’ expectations of a higher EBITDA in the next 12 months. This typically results in a higher current EV-to-EBITDA multiple than the past average. The forward EV-to-EBITDA multiple considers the sell-side analysts’ consensus estimate of EBITDA for the next 12 months.

Forward EV-to-EBITDA comparison

SLB’s peer Patterson-UTI Energy’s (PTEN) forward EV-to-EBITDA multiple is 6.0x. This is lower than PTEN’s current EV-to-EBITDA multiple, indicating analysts’ estimates of a rise in PTEN’s EBITDA in the next 12 months.

U.S. Silica Holdings’ (SLCA) forward EV-to-EBITDA multiple stands at 5.4x. This is lower than SLCA’s current EV-to-EBITDA multiple, indicating analysts’ estimates of a rise in SLCA’s EBITDA in the next 12 months.

Tidewater’s (TDW) forward EV-to-EBITDA multiple is 11.8x. This is lower than TDW’s current EV-to-EBITDA multiple, indicating analysts’ estimates of a rise in TDW’s EBITDA in the next 12 months.

Next, we’ll discuss Schlumberger’s valuation compared to its industry peers.

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