The Razor's Edge

2-Year Price History

Ockham's Rating

SLB Stock Evaluation

As the Recommendation Summary above points out, there has not been a significant change to SLB’s price or fundamentals. However, we never look at a security and ignore it’s relation to the overall market and its individual sector. In the case of SLB, the Basic Materials sector is seeing a sharp decline in its relative standing to the other sectors studied by Ockham. Given this decline in attractiveness, it has become necessary to downgrade SLB as well as many of its peers. Be sure to read our Sector and Peer Analysis to see the other securities that this general down turn may be affecting in the Basic Materials sector.

SLB Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, SLB the high and low end of the Price to Sales per share ratios are 4.38x and 2.35x respectively.

Notice that SLB's current Price to Sales per share ratio is 1.90x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $50.74, SLB is 44% below where we would expect to see it. This will beneficially factor into our final analysis of SLB as it is not often that this stock sinks to these levels.

SLB Cash Earnings

As the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company's value, and currently SLB is significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for SLB to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 17.50 and a 9.63 low over the same period.

Now that SLB’s current price is $50.74 and its Price to Cash Earnings ratio is 6.39, we are very positive on its outlook from the cash earnings perspective. In fact, SLB is now trading a full 53% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why SLB has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

SLB Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure on a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from SLB against the historic high and low levels over an available data range. Because SLB has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In SLB’s case, the estimated annual dividend is $0.84 producing a current dividend yield of 1.66%. The highest dividend yield from SLB in recent history was 2.28% while the lowest dividend yield was 0.57%. It's hard not to notice that SLB pays a current dividend yield that is 16.49% above the historical median. This peaks our interest since our analysis is looks favorably upon dividend yields that are greater than the historical median.