Schlumberger (SLB) was added to Goldman Sachs' conviction list Monday as a "winner in the New Oil Order." Here are four reasons why Goldman is so bullish on the oilfield service provider:
- Schlumberger is well positioned in incremental sources of oil supply including U.S. shale, the Middle East and Russia according to the analyst note. The analyst wrote that Schlumberger has "unmatched ability to reallocate resources between basins" to focus on the region that is growing the most.
- The analyst expects "surprises on synergies" from Schlumberger's Cameron acquisition with improved technological offerings. The deal also gave Schlumberger access to more drilling and formation data. Schlumberger said it bought Cameron last year to help reduce operating costs and streamline supply chains now that oil prices are expected to stay lower for longer. Exploration and production companies are demanding lower prices from service providers to offset weaker revenue from U.S. crude. Goldman said Schlumberger can offer lower cost solutions vs. its rivals like Halliburton (HAL) and Baker Hughes (BHI).
- Historically, Schlumberger has as outperformed the S&P 500 when oil prices rise. Goldman expects the company's earnings growth to outpace the S&P 500 between 2016 and 2018.
- The analyst is bullish on Schlumberger's balance sheet and believes that the company will be able to continue its dividend payouts.
Goldman said the recent pullback in prices is good news for investors and "would consider any associated/further weakness a buying opportunity."
Schlumberger shares closed up less than 0.1% in the stock market today. Halliburton shares rose. Baker Hughes shares fell 1%.
