Is SLB (SLB) Reasonable After Its 88% Five Year Run?

SLB has delivered a strong multi year share price run, which naturally raises a simple question for you as an investor. Are today’s cash flows and the ones the business is expected to generate ahead enough to justify where the stock trades now?

• Over the past 5 years, SLB has returned 88.3%, so a lot of investor confidence is already embedded in the current valuation debate.
• Fresh contracts for leak detection and drilling services, including work on Norway’s Johan Sverdrup Phase 3 project and the Musuma-1 exploration well in Zimbabwe, may support expectations for future cash generation from SLB’s technology and service offering.
• Prefer to judge SLB on earnings? See why SLB's 24.9x P/E tells a different valuation story.

For investors, the debate is whether SLB’s current share price is adequately backed by the cash flows implied by a Discounted Cash Flow (DCF) intrinsic value estimate.

If you want to pressure test whether SLB's cash flow debate is unique or part of a wider pattern in energy and infrastructure, scan a broader set of opportunities with the 40 power grid technology and infrastructure stocks

Is SLB a Bargain on Cash Flow?

The Discounted Cash Flow model values SLB on the cash it is expected to generate for shareholders over time. On the latest twelve month numbers, the group produced about $4.0b of free cash flow, and the projections used in the model assume that figure trends higher into the next decade rather than shrinking.

Those forecasts show SLB moving from current cash generation in the low billions of dollars each year to higher levels by 2030, then settling into more moderate growth. Because the Johan Sverdrup Phase 3 contract extends SLB’s leak detection and monitoring role on a large, long life asset, that kind of project helps explain why the cash flow model points to an intrinsic value substantially above the current $52.12 share price. Find out what SLB could be worth using our Discounted Cash Flow (DCF) estimate.

The SLB Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for SLB pick up where the cash flow puzzle leaves off. They explain which future paths for SLB's growth, margins and earnings would need to hold for the stock to be worth materially more or materially less than today. Instead of relying on a single multiple or model output, each one sets out the assumptions behind its fair value so you can compare those expectations with the actual results as they emerge.

SLB brings out two very different instincts in the community, with one camp seeing much more upside potential than the other.

Bull case: 30% undervalued

"Expanding investments and capability in low-carbon and decarbonization solutions, including integrated CCS offerings (Capturi/Sequestri), geothermal, hydrogen, and grid-scale energy infrastructure, will enable SLB to become a global leader in energy transition markets…"

Discover why this Narrative puts SLB at 30% undervalued.

Bear case: roughly fairly valued

"The accelerating shift by governments and major corporations towards ambitious decarbonization and net-zero targets is set to reduce global demand for oilfield services over the next decade, shrinking Schlumberger's (SLB's) addressable market…"

Explore why this Narrative puts SLB at roughly fairly valued.

For SLB, the share price is only one piece of the decision

The cash flow story is only half the picture, because the people steering SLB and the way their pay is structured can reinforce or undermine that valuation logic. See who runs SLB and how they are paid.

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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