SLB has nearly doubled investors' money over the past five years, yet current checks suggest the stock still trades at a discount to its intrinsic value estimate and to market multiples that typically apply to this type of business.
- A roughly 91.2% return over five years points to meaningful value creation that raises the bar for what would count as an attractive entry price today.
- New technology focused contracts such as the Kuwait Oil Company Ahmadi Innovation Valley project can support long term cash flow expectations, while operational disruptions in the Middle East and insider selling may keep a lid on how much investors are willing to pay for SLB in the near term.
- SLB appears broadly inexpensive on Simply Wall St's valuation checks, with 6 out of 6 factors indicating undervaluation relative to its fundamentals.
The issue now is whether the current share price around US$47.76 still offers enough potential reward compared with the intrinsic value estimate and the recent share price performance for SLB.
Find out why SLB's 31.5% return over the last year is lagging behind its peers.
Does SLB Look Undervalued on Cash Flow?
The Discounted Cash Flow (DCF) model here looks at SLB based on the cash it is expected to generate for shareholders. On this approach, SLB’s latest twelve month free cash flow sits at about $3.8b, with the model assuming that cash flows grow over time rather than shrink, consistent with a mature, cash generative energy services business.
Feeding those projections into the 2 Stage Free Cash Flow to Equity model gives an estimated intrinsic value of about $93.57 per share, versus the recent share price around $47.76. That gap implies the stock screens roughly 49.0% undervalued on this cash flow view. The recent disruptions to SLB’s Middle East operations, which contributed to a reported decline in quarterly profit, may help explain why the market price is currently below the value indicated by this DCF analysis.
On these DCF assumptions, SLB stock currently appears undervalued relative to its estimated intrinsic value.
Our Discounted Cash Flow (DCF) analysis suggests SLB is undervalued by 49.0%. Track this in your watchlist or portfolio, or discover 45 more high quality undervalued stocks.
Is SLB a Bargain on Earnings?
P/E is usually a reasonable way to think about SLB because earnings are a key driver for large, established service companies. SLB trades on a P/E of about 21.4x, which sits below the Energy Services industry average of roughly 26.6x and also below the wider peer group average of about 34.5x.
The fair P/E ratio implied by the model is about 24.5x, taking into account SLB’s margins, scale, growth profile and risk. Set against the current 21.4x, that indicates the stock trades at a discount of a few turns to where it might sit if it were priced in line with those fundamentals.
On this P/E yardstick, SLB stock appears undervalued relative to both the industry and the model’s fair multiple.
See what the numbers say about this price — find out in our valuation breakdown.
The SLB Narrative: What Would Justify Today's Price?
Simply Wall St Narratives for SLB pick up from this valuation puzzle by spelling out the specific assumptions on growth, margins and earnings that would need to hold for the stock to be worth materially more or less than today’s price. They are available on the company’s Community page. Each one presents its fair value as a thesis about SLB’s business that can be revisited over time, rather than a single point-in-time estimate.
One of the top community narratives on SLB: 33% undervalued
"Transformative acquisitions, digital growth, and advanced technologies position the company for sustained market leadership, resilient global earnings, and structurally higher margins..."
Read one of the top narratives on SLB
Do you think there's more to the story for SLB? Head over to our Community to see what others are saying!
The Bottom Line
For SLB, both the Discounted Cash Flow (DCF) intrinsic value estimate and the earnings multiple view point in the same direction, suggesting the stock screens as undervalued relative to its cash flows and sector peers. The broader valuation checks also look supportive, which reduces the chance that the DCF or P/E signals are outliers.
From here, the key question is whether SLB can sustain the cash generation and earnings profile implied by those models without further disruption, and whether the market is willing to re-rate the stock if execution on current projects and regional risks stays under control.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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