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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


January 29th 2013 Schlumberger
Industry: Oil Driller
Price as of 1/30: $78.60

A good start to the year with the S&P 500 hitting 1500 for the first time since 2007. January is ready to close out with the best returns in over 20 years. Most sectors are performing well with energy, healthcare and industrials in the lead. Only three sectors are underperforming so far in 2013 which include utilities, technology, and telecom. The news for technology won't get any better with Apple dropping 12% following earnings, now the worst performer in the S&P 500. What a difference six months makes. The earnings so far are pointing to better than expected global growth. That's good news for energy, industrials, and materials. Back home housing continues to improve lifting a number of different sectors including the financials. In the short term, a number of indicators are pointing to overbought territory with 90% of stocks trading above their 50 day moving average. This week we'll highlight an oil driller that reported strong earnings, with a number of upgrades, and a dividend coming up. The stock of the week is Schlumberger. Schlumberger is a blue chip investment given its huge global footprint (85 countries), leading seismic business, and its history of consistent growth. With the price of oil on the rebound, Schlumberger is a solid pick for 2013 out of the energy space.

Two weeks ago, Schlumberger reported in-line earnings while beating revenue estimates. In the fourth quarter earnings came in at $1.08 per share, excluding non-recurring items while revenues rose 8.5% year/year to $11.17 billion verse $10.81 billion consensus. Management indicated the company capped the year with revenues of over $42 billion, up by 14%, with the International Areas growing by $4 billion, or 16%, their strongest growth by far since 2008. International grew from robust exploration and development activity, both offshore and in key land markets. In North America, they demonstrated resiliency from the challenges of the land markets by growing the business by more than $1 billion, or 9%, aided by our strong position in the offshore market, particularly in the US Gulf of Mexico. The world macroeconomic environment remains uncertain while the GDP growth outlook for 2013 remains unchanged. Global oil demand is expected to grow at similar levels to 2012. The supply side will see further growth in North America while other non-OPEC production will likely continue to face delay and decline challenges. Absent any unexpected macroeconomic or geopolitical events, global spare capacity is expected to remain largely unchanged.

Following earnings, Schlumberger received four upgrades with price targets of $91, $97, $92, and $100 a share. FBR Capital has the highest price target and believes Schlumberger's 2013 outlook bodes well for oilfield service sector. They continue to believe the biggest surprise potential in 2013 stems from a rebound in U.S. land activity and the U.S. well count should be up substantially in 2013 in a flat E&P capex environment. Duetsche Bank has the lowest price target and made comments indicating Schlumberger's International business continues its steady march higher and word of acceleration in Saudi activity could finally drive the margin inflection they have been expecting. They also believe Schlumberger will return more cash to shareholders through lower CAPEX and higher dividends.

Some of the good news has been priced into Schlumberger's stock price. The stock is up 20% year to date so a modest pull back could be warranted. But with global growth on the upswing, energy looks like a good bet for 2013. With an ex-dividend coming up in two weeks, Schlumberger looks like a solid pick on any pull backs.