SLB - Embedded Expectations Analysis - 2020 05 11
Schlumberger Limited (SLB:USA) currently trades below historical averages relative to UAFRS-based (Uniform) assets, with a 1.2x Uniform P/B. Even at these levels, the market has bullish expectations for the firm, but management appears concerned about their costs, declines in rig activity, and COVID-19Specifically, management may have concerns about declines in international rig activity, production margin pressures, and the impact of the pandemic on logistics, supply chains, and manufacturing across all organizations. Moreover, they may lack confidence in their ability to reduce their research and engineering investment, exploration budget, and capital spending. Additionally, they may have concerns about disruptions from government-mandated shutdowns, production wells closures, and their exposure to deepwater drilling in their international portfolio
Schlumberger provides technology for reservoir characterization, drilling, production and processing to the oil and gas industry. The company has four segments: Reservoir Characterization, which consists of the principal technologies involved in finding and defining hydrocarbon resources; Drilling, which consists of the principal technologies involved in the drilling and positioning of oil and gas wells; Production, which consists of the principal technologies involved in the lifetime production of oil and gas reservoirs; and Cameron, which consists of the principal technologies involved in pressure and flow control for drilling and intervention rigs, oil and gas wells and production facilities.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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