Stifel Upgrades Schlumberger, Finds 6 Reasons To Turn Bullish

Shares of Schlumberger Limited. (SLB) are down about 50 percent over the past year and trading at a compelling valuation that offsets current concerns, according to Stifel.

The Analyst

Stifel's Stephen Gengaro upgraded Schlumberger from Hold to Buy and maintained a $50 price target.

The Thesis

The bullish case for Schlumberger's stock is based on six unique factors, Gengaro wrote in a note. These include:

1. Pricing headwinds continue to remain, but rising activity over the next few years should lift Schlumberger's top line and drive margin expansion.
2. The company will limit Schlumberger Production Management (SPM) investments by $200 million in 2019 and focus on enhancing ongoing projects along with monetizing a portion of the SPM portfolio.
3. The monetization of SPM assets should result in free cash flow improvements in 2019 and 2020, which could serve as a catalyst for the stock as investors seek "strong free cash flow stories" in oil services.
4. The stock's 5.7-percent dividend yield looks "secure" based on a favorable free cash flow outlook and first-hand discussions with management.
5. COO Olivier Le Peuch is likely to assume the CEO title within the next six months to eight months.
6. Shares are trading at a "very compelling" valuation of eight times 2020 EBITDA, which is near the low-end of the normalized range of seven to 13 times.

Price Action

Shares of Schlumberger were trading higher by 1.5 percent to $35.60 Friday morning.