This SLB Stock Forecast article was written by Joshua Geller – Financial Analyst intern I Know First.

Highlights:

• SLB’s stock has grown 150% since mid-November 2020 and 25.66% in the last month alone.
• As the economic demand for raw materials surges coming out of the pandemic, OPEC has announced large increases in petroleum output and will regulate 5.8 million barrels per day as of July, 2021.
• Technical analysis reveals up-trends in the stock’s price and a rebound from November 2020’s rude oil lows.

Overview and Company Structure

Schlumberger N.V. is the world’s largest oilfield services company which includes the drilling, creation and maintenance of wells to enable performance and sustainability for the global energy industry. SLB is a global and geographically diverse company with headquarters in four countries and drilling properties in North America, the Middle East, Russia, and Central Asia as well as offshore wells. The company is public on the NYSE with a market capitalization of $45.25 billion. 

The company generates revenue through four divisions being: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems. Digital & Integration applies software to already developed oil fields in order to increase production and cash flows. This includes the company’s proprietary data-analysis program and consulting services. Reservoir Performance consists of testing and evaluating potential drilling spots where SLB will run wirelines to collect data about the reservoir’s flow-rate or other metrics. Well Construction combines Schlumberger products and services for optimal well placement and operation. This includes geological surveillance, directional drilling, drilling fluids, tools, bits, rigs, and equipment. Production Systems maximize the recovery of reservoirs to the surface and offer the customer: electrical submersible pumps, safety control technology, wellhead systems, and most importantly valves. Offering these divisions for its customers, Schlumberger’s corporate strategy is to tailor its services to a “fit-for-basin” model that assesses each customer and site individually, utilizing local and regional differences. SLB’s reliance upon technology and investments in R&D are ultimately why the company is an industry leader in oil and natural gas.

Schlumberger is trying to transition towards being a technology company and not just an oilfield services provider. During Q4 2020, it has divested its onshore hydraulic fracturing business in the U.S. and Canada, making the way for the company to focus on its other regions. Once the company had realized a 48% drop in its North American revenues while compared to 19% abroad it started to place emphasis on non-American markets. Additionally, it has also committed to working with NOV Inc. (large oilfield competitor) in order to accelerate the research and development of automated drilling solutions to create a better performance for operators. The trend that SLB is following is to increase the longevity of natural resources using technology and moving towards more sustainable energy. 

As the world transitions back to a life outside of their homes and we see an increase in demand for gas and crude oil, SLB’s focus on the international oil markets is what makes it an interesting prospect and is better positioned than its competitors. As it is dropping its drilling in North American, it will take on new offshore projects in Kuwait, Qatar, Libya, Indonesia and Argentina. This diversification is allowing the company to grow with emerging markets and draw its focus from more established countries rather than the United States.

Financial Valuation

This DCF model predicts the share price of SLB to be $38.51 by the end of this year. The model projects the future cash flows of the company based on revenue, COGS, depreciation & amortization and calculates projected free cash flow as a function of earnings as well as balance sheet items like capital expenditures and changes in net working capital. It uses a beta compiled by comparable companies that are also in the oilfield services industry and assumes a long-run growth rate of free cash flows by 2.5% which is very conservative considering the 2021-2025 UFCF growth rates and the maturity of the company. This predicts an unusually high return, however because of the transition of SLB towards providing technology solutions to oilfields that increase their efficiency and sustainability, as well as the oil industry’s return due to consumers starting to travel again the company’s fundamental analysis predicts such a high share price movement. 

Moving into technical analysis, a high share price movement is also reflected within the candlestick chart of the company, shown below:

As we can see, the company hit record lows in October and November of 2020 where an abnormally large volume of shares were sold as the outlook during the height of the pandemic was pessimistic. However, since then, there is a trend being established with higher highs and higher lows in mid-December, mid-January, mid-March and finally mid-May. This trend should continue after a cyclical pull-back in the market late-May and early-June because the volume of shares sold during the most recent pull-back was less than its rally towards $34.00. Additionally, on May 12th the 20 day moving average crossed the 50 day moving average, indicating a shift in momentum with bullish signs. The last candle in the most recent market pull-back from the upward trend is a hammer candle (on May 28th), which is defined as a candle with a short body (daily open minus its close), no upper shadow and a lower tail that is at least twice as long as its body. The candle shows that the sellers tried to push the price lower during the day but however have lost their strength shown by the high closing price, which indicates a possible trend reversal and is confirmed by the bullish candles on June 1st – 3rd.

These sudden bullish moves were also insinuated by announcements from OPEC+ (the Organization of the Petroleum Exporting Countries and their allies) who stated that the demand for oil is rapidly increasing and agreed Tuesday to allow additional output of 450,000 barrels a day starting in July. Meanwhile a day before the Joint Technical Committee reported that oil demand would jump by 6 million barrels a day in the second half of 2021. This is concurrent with the general increase in demand for all raw materials coming out of the pandemic and others report that global economic output will increase by 5.8% this year and would be the strongest expansion since 1973.

Conclusion

All in all, as the oil industry bounces back buyers have the opportunity to go into long positions on SLB. Being the leading company in the Drilling Services and Equipment industry, its growth and return will set precedents for oil as it moves towards accomplishing carbon emission goals and becoming more sustainable in light of public opinion. In turn, the stock price is expected to reach record highs of $38.51 in the forthcoming months. The I Know First algorithm predicts a large signal for the rest of the year and has had recent success in the past 14 days.

Past I Know First Success with SLB Stock Forecast

On May 19^th 2021, I Know First has made a bullish SLB stock forecast, which proves to be successful as we see SLB’s price rose by some 7.23% in April over a 14-days horizon and continues the positive trend.

Here at I Know First, one of the top fintech companies in the industry, our algorithm has modeled and predicted asset price movement worldwide for short-term and long-term time horizons, ranging from 3 days to a year. Since 2011, we have been providing daily S&P 500 forecast, including daily stock market forecast, currency exchange forecast, gold price forecast as well as AAPL stock price. In particular, I Know First has been closely watching and predicting the Coronavirus stock market to assist investors during this uncertain time.

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