2024-07-22 05:36:01 ET
Summary
- SLB is not cheap but has been growing revenue and earnings at impressive rates.
- The market has been penalizing the company due to misunderstanding Saudi Arabia's shift from new offshore developments to the Jafurah unconventional gas field.
- SLB will benefit from the Saudi focus on Jafurah and the latest earnings report confirms the growth trend in the Middle East remains intact.
- The resumption of SLB's buyback program should be a further tailwind.
Investment thesis
SLB ( SLB ), formerly Schlumberger, beat earnings yet again last Friday:
However, SLB stock hasn't had a good 2024 and is 20% below last year's highs:
Despite being the largest energy services company in the world and the fourth largest constituent of the S&P 500 ( SPY ) energy index ( XLE ), right after Exxon ( XOM ), Chevron ( CVX ) and EOG ( EOG ), SLB has lagged behind its smaller and less liquid peers:
In my view, there were two reasons for this underperformance:
- Misplaced fears about SLB's growth prospects in the Middle East, after a surprise Saudi Aramco announcement from January that was widely misinterpreted as a capex reduction but should be more properly seen as a redeployment of capex from offshore to land, thus still benefiting SLB;
- The temporary suspension of buybacks in the second quarter to comply with U.S. securities laws at a time when the market was already putting pressure on energy stocks.
Read the full article on Seeking Alpha
For further details see:
SLB: The Market Doesn't Fully Appreciate The Growth Opportunities