Is This Company Drilling Up Some Profits?

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future.  As the 2012 year draws to a close, I would like to pinpoint on a leader in the oilfield service industry, Schlumberger Limited (NYSE: SLB).

 

Strengths:

  • Solid Revenue Growth: In 2006, Schlumberger reported revenue of $19.2 billion; in 2011, the company raked in $39.5 billion of revenue, representing year over year growth of 15.52%; this trend is highly anticipated to sustain into the future, with projections putting 2015 revenue at $51.7 billion

 

  • Dividend: Currently, Schlumberger pays out a quarterly dividend of $0.28, which annualized puts the dividend as yielding 1.61%
  • Established and Diversified Nature: Schlumberger operates in over 80 countries around the world and employs 113,000, and with this comes a certain level of establishment and diversification
  • Institutional Vote of Confidence: 76% of shares outstanding are held by institutional investors, displaying the confidence the largest investors in the world have in the company and its future
  • Net Profit Margin: Currently, Schlumberger possesses a net profit margin of 12.08%, displaying a strong and profitable company

Weaknesses:

  • Debt: At the moment Schlumberger possesses around $8.6 billion of debt on their balance sheets, a major downside to the business

 

  • Dependence on European Market: In 2011, $9.8 billion of revenue was derived from European operations, or 26.56% of total revenue, and this dependence on the stagnant European market could hurt revenue growth
  • Vulnerability to Environmental Issues: Oil companies and oil field service companies are notorious for their consistent mishaps, from the Exxon Valdez oil spill to the BP Deepwater Horizon spill, and these disasters are not only harmful to the environment but also to the company’s profits
  • Declining Margins: Over the past decades both Schlumberger’s revenue and profits grew drastically, however revenue growth has greatly outpaced profit growth, representing a net profit margin that is shrinking

 

Opportunities:

  • Acquisitions: In December 2011, Schlumberger announced a merger with SES Holdings Limited, and further acquisitions and mergers in the future could fuel growth
  • Innovation: Schlumberger must continue to innovate its products and services to remain the leader in oil field services industry
  • Dividend Growth: Since implementing their dividend program in 1957, Schlumberger has consistently raised its payouts, and this trend is highly anticipated to sustain into the future

 

  • Growth in American Market: A recent IEA outlook projected that the United States would surpass Saudi Arabia by 2020 in oil output, and this growth in oil output could significantly help Schlumberger’s growth
  • Increase In Demand: Every day, the world is requiring more oil, and as the world’s population only increases, demand will only rise further, further fueling growth

 

Threats:

  • Competition: The oilfield service industry is a highly competitive one, and this fierce competition can cut into Schlumberger’s profits
  • Stagnant Global Economy: In stagnant and uncertain economic times, companies are less likely to pour money into their business, which could hurt Schlumberger’s revenue growth
  • Government Regulation: Any government regulation  that restricts the oil industry could indirectly hurt Schlumberger’s business as their customers are restricted  
  • Decline in Oil Prices: When a decline in oil prices occurs, the companies that pay millions to get oil out of the ground hesitate, as at a certain point it simply is not a profitable endeavor

Competition:

Major publically traded competitors of Schlumberger include the Halliburton Company (NYSE: HAL), Weatherford International Limited (NYSE: WFT), Baker Hughes Incorporated (NYSE: BHI), and National-Oilwell Varco Incorporated (NYSE: NOV). All of these competitors are oilfield service companies, and compete directly against Schlumberger. Halliburton is valued at $32.21 billion, and pays out a dividend yielding 1.04%. Weatherford is valued at $8.23 billion, however pays out no dividend. Baker Hughes is valued at $17.88 billion, and pays out a dividend yielding 1.48%. Finally, National-Oilwell is valued at $29.17 billion, and pays out a dividend yielding 0.76%.

The Foolish Bottom Line:

Schlumberger is a global leader in the oilfield service industry, and possesses some of the best technology in the world. The company has accelerated revenue growth and a decently sized dividend that is on the rise. Additionally, the company should find significant growth as oil demand only rises into the future. All in all, to the long term investor Schlumberger is a remarkable investment, however in the short term the company is bound to experience volatilely, with the looming fiscal cliff and tensions high in the Middle East.       


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Halliburton Company. Motley Fool newsletter services recommend Halliburton Company and National Oilwell Varco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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