Schlumberger Limited (NYSE:SLB) — This leading oil services company provides equipment and technology primarily to large and medium-size drillers around the world.
This year, analysts expect Schlumberger to report its first annual revenue decline since 2009 due to the sharp drop in the price of crude oil. S&P Capital IQ estimates 2015 sales will fall 12%.
Falling oil prices have forced many upstream customers to cut capital spending for the year. However, Capital IQ notes SLB is focusing on higher-end technologies, which have better profit margins. Its analysts expect 2015 operating earnings per share to decline to $5.51 from $5.57 in 2014, but SLB continues to improve its cash flow.
An increase in the price of crude could have a significant impact on earnings, and many analysts are becoming more positive on the energy sector.
Capital IQ has a “buy” rating and 12-month price target of $96 on SLB stock, which is based on a multiple of just 10.7 times enterprise value to projected 2015 EBITDA. I think this could prove very conservative.
SLB stock broke above its bearish resistance line several weeks ago. That breakout was confirmed by a strong buy signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR), and a MACD buy signal. The breakout is significant in that it reverses a major downtrend following a top at over $118 on July 1.
The 20-day moving average is hooking up and could soon flash a trading buy signal as it moves up through the 50-day moving average.
Buy SLB stock under $87 with a trading target of $95 for a return of 9%. Investors should consider buying shares for exposure to the oil services sector and the potential for substantial long-term returns. The company pays a dividend of $2 per share for a forward annual yield of 2.2%.
