Schlumberger Limited (SLB) supplies reservoir characterization, drilling, production, and processing technology to the oil and gas industry worldwide. The Paris, France-headquartered company operates in four divisions: Digital & Integration; Reservoir Performance; Well Construction; and Production Systems. In comparison, Baker Hughes Company (BKR) in Houston, Tex., delivers a portfolio of technologies and services worldwide. The company operates through four segments: Oilfield Services (OFS); Oilfield Equipment (OFE); Turbomachinery & Process Solutions (TPS); and Digital Solutions (DS).
Increasing oil and gas extraction activities over the past few years have led to a rise in demand for oil & gas products and services globally. In addition, the need for technological advancements in drilling and the adoption of new techniques are major factors driving the growth of the oil & gas equipment industry. The global oilfield equipment market is expected to reach $144.43 billion in 2027, growing at a 2.8% CAGR. Both SLB and BKR are expected to continue benefiting from the industry tailwinds.
SLB has gained 23.5% in price over the past nine months, while BKR has returned 11.4% over this period. Also, SLB’s 29.7% gains year-to-date compare with BKR’s 14.8% returns. In terms of their past year’s performance, BKR is the winner with 57.6% gains versus SLB’s 48.4%.
But which stock is a better buy now? Let’s find out.
Latest Developments
On September 8, SLB agreed with EnerVenue to deploy the latter’s uniquely differentiated nickel-hydrogen battery technology to advance large-scale deployment of nickel-hydrogen battery technology across selected global markets. This move should allow SLB to emerge as one of the long-term energy transition infrastructure leaders in the industry.
On September 14, BKR and C3 AI (AI) successfully deployed the BHC3 Production Optimization enterprise AI application at MEG Energy, an Alberta, Canada -based energy company, to improve its operational capabilities. “This is an exciting deployment, as BakerHughesC3.ai solutions are now serving MEG Energy’s technology and operational excellence objectives with scaled, domain-specific enterprise AI,” according to Uwem Ukpong, executive vice president of regions, alliances and enterprise sales at BKR.
Recent Financial Results
SLB’s revenues increased 5% year-over-year to $5.63 billion in its fiscal second quarter, ended June 30. Its adjusted EBITDA stood at $1.20 billion, up 43% from the same period last year. Its non-GAAP net income grew 525% from its year-ago value to $431 million. The company’s non-GAAP EPS increased 500% year-over-year to $0.30.
For the second quarter, ended June 30, BKR’s revenues increased 9% year-over-year to $5.14 billion. Its adjusted EBITDA grew 38% from its year-ago value to $611 million, while its adjusted net income improved 367.7% year-over-year to $83 million. The company’s adjusted EPS improved 300% year-over-year to $0.10.
Past and Expected Financial Performance
SLB’s EBIT and revenues have declined at CAGRs of 14.3% and 12.4%, respectively, over the past three years. Also, SLB’s EPS declined at a 20.4% rate per annum over the past five years. Analysts expect the company’s revenue to increase 10.5% in the current quarter, 11.3% in the next quarter. However, its revenue is expected to decline 2.6% in the current year. The company’s EPS is expected to grow 118.7% in the current quarter, 77.3% in the next quarter, and 85.3% in the current year.
In comparison, BKR’s EBIT grew at a 6.7% CAGR over the past three years, while its revenues declined 2.5% over this period. Furthermore, its EPS decreased at a 33% rate per annum over the past five years. However, analysts expect BKR’s revenue to increase 5.6% in the current quarter, 4.6% in the next quarter, and 1.6% in the current year. The company’s EPS is expected to grow 425% in the current quarter, 542.9% in the next quarter, and 2,333.3% in the current year.
Profitability
BKR is more profitable with a gross profit and levered FCF margins of 17.93% and 8.18%, respectively, compared to SLB’s 13.49% and 5.79%.
However, SLB’s ROA and ROTC of 3.04% and 4.44%, respectively, compare with BKR’s 2.07% and 3.10%.
Valuation
In terms of forward EV/Sales, SLB is currently trading at 2.30x, which is 47% higher than BKR, which is currently trading at 1.22x. Also, SLB’s 10.87 forward EV/EBITDA ratio is 12.3% higher than BKR’s 9.53.
Thus, BKR is a relatively affordable stock here.
POWR Ratings
Both SLB and BKR have an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Both the stocks have a C Momentum grade. This is justified because both SLB and BKR are trading above their respective 50-day moving averages.
Both the stocks have a Stability grade of C owing to their greater than 1 beta. SLB has a 1.37 beta, while BKR has a beta of 1.33.
Of the 42 stocks in the Energy - Services industry, SLB is ranked #6. Alternatively, among the 93 stocks in the Energy - Oil & Gas industry, BKR is ranked #36.
Beyond what we’ve stated above, we have also rated the stocks for Stability, Momentum, Value, and Growth. Click here to view SLB ratings. Also, get all BKR ratings here.
The Winner
Both the stocks have reported strong financials in the recent quarter, but none of them appears to be a good bet now given their weaker-than-industry financials. Thus, we think it could be wise to wait for better entry points.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Energy - Services industry here. Also, here to view the top-rated stocks in the Energy - Oil & Gas industry.
SLB shares were trading at $27.22 per share on Monday morning, down $1.09 (-3.85%). Year-to-date, SLB has gained 26.34%, versus a 16.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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