Schlumberger And National Oilwell Varco: 2 Oil Field Services Companies With Momentum

 |  Includes: NOV, SLB
by: Winning Strategies


Oil field services companies are gaining momentum.

Schlumberger and National Oil Well Varco have set strong footholds for future growth.

Both companies are good stocks to buy and hold.

Oil field services companies are gaining momentum with the stabilization of the global economy and increased drilling and the production activities over the past few years. Most of the companies operating in the exploration & production industries and integrated oil & gas companies are investing huge amounts of capital to increase their production level. The boom in the demand for natural gas liquids and the shift in the capital deployment towards that further enhanced drilling and exploration activities all around the globe. Anadarko Petroleum (NYSE:APC), ConocoPhillips (NYSE:COP), Chesapeake Energy (NYSE:CHK), Devon Energy (NYSE:DVN) and many others have been making record investments in the growth opportunities year over year so as to increase their production level.

All these activities have resulted in a strong demand for oil field services companies. These are providing technologies, products and services to the drilling and exploration companies. With the strong demand, the oil field services companies are generating record growth year over year. Schlumberger (NYSE:SLB), Halliburton Company (NYSE:HAL), National Oil Well Varco (NYSE:NOV) and Baker Hughes (NYSE:BHI) are some of the prominent names operating in the oil field services industry. All these companies have been generating massive growth figures in the past few years and are expected to sustain their momentum.

In this article I have picked Schlumberger and National Oil Well Varco that have shown the ability to capitalize on the growing demand. These two companies are offering better returns. I also believe that these companies are offering an attractive entry point and they are good stocks to hold for safe dividends and steady price appreciation.

Where Does Schlumberger Stand?

Schlumberger is one of those companies that have generated a strong growth rate with its innovative products and technologies. It's all three business segments - production, drilling and reservoir segment - are strongly capitalizing on the demand arising in the market. Its wire line services, seismic activity, software and pressure pumping & completions technologies are leading the sales growth for the company. In addition to that, Schlumberger is a diversified company with extensive footprints in more than 85 countries with over 126,000 employees. Its extensive footprints and strong penetration in the market are allowing it to capitalize on the demand.

In the past three years, its revenue growth rate was very high at 17% and the earnings growth rate was at 16%. Furthermore, the company is well set to generate a double digit growth rate in the coming days especially due to its innovative products and technologies. In the latest quarter of this year, it posted $12.05B in sales as compared to $11.24B in Q1 of 2014 and $11.18 billion in the past year quarter. This represents a very strong growth of 7% sequentially and 8% on year-on-year basis. This growth has been led by its software sales, wire line services and pressure pumping & completions technologies. As the company moves forward, a look at the market fundamentals makes me expect the company to generate double digit growth for the full year.

Its cash generating potential also remains as equally strong as its earnings are. Therefore, Schlumberger has been making significant increases in dividends over the years. Indeed, its free cash flows are offering room for a potential increase. In the latest quarter, SLB has generated free cash flows of $1.6B while the dividend payments were at only $522M, presenting a huge gap between dividend payments and free cash flow.

Where Does the other Player Stand?

National Oil Well Varco is also gathering record revenues and earnings over the past three years. Since 2011, it has been able to grow sales from $14B to $22B in 2013. In this year, the company has made a big move of spinning off its low performing distribution business into a new company. This move will allow it to focus more on its core business and high performing drilling & production segments. NOV has further simplified its remaining two business segments into four sub-segments so as to focus more its core business. Its latest quarterly results show that the company's move of spinning off the distribution business proved to be right. It has generated $5.2B in sales which represents an increase of 7% from the Q1 and another 12% increase from the past year's quarter. Additionally, the earnings per share stands at $1.44/share compared to first quarter of $1.37/share.

The company has gathered a big backlog of $2.14B for its completion & production solutions segment and $15.39B for its rig systems segment. This signifies that the company will generate double digit growth rates for the full year. The company's confidence in its financial performance can be seen by the recent increase by 75% in its dividends. Its cash flow shows that the company has potential to sustain its dividend growth because its free cash flows of $702M are higher than its quarterly dividend payment of $198M at the end of latest quarter.

In Conclusion




Price/Earnings TTM








Price/Sales TTM




Rev Growth (3 Yr Avg)




Net Income Growth (3 Yr Avg)




Dividend Yield




Click to enlarge


Both companies are trading at attractive multiples based on above table. Their fundamentals are also moving nicely and the long-term outlook also looks strong. Both companies are on the dip with market correction, therefore, I believe they are presenting attractive opportunity for investors. Furthermore, both companies have set strong footholds for future growth and the business dynamics are also bright. Hence, buying and holding both stock would be a good idea.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.