Stocks National Oilwell Varco (NYSE: November) It is currently trading at a price 50% below the pre-Covid level observed in January 2020, but competitors’ stocks Schlumberger (NYSE: SLB) It remains 30% lower. Does it make NOV stocks a better choice than SLB? Both companies provide oilfield services, including drilling and completion and production solutions, to upstream oil and gas companies in the United States and abroad. In 2020, NOV and SLB incur significant impairment costs and the asset base shrank by 25% as benchmark price expectations fell over the next few years. SLB stocks are a risky choice due to their high financial leverage, but consistent historical differences in revenue growth and operating cash margins are responsible for SLB’s higher valuation multiples (P / S). Considering the low valuation multiple (P / S) of NOV compared to the previous year, the company’s performance in the first half of 2021, and the large difference between SLB and NOV’s current P / S multiple than previously observed. Trefis then thinks the National Oilwell Varco can afford it. For growth. Interactive dashboard analysis compares historical revenue growth, revenue, multiples of valuation, and many other factors. National Oilwell Barco vs Schlumberger: Industry buddies; Which stock is a better bet?
1. Revenue growth
Schlumberger’s growth has been a bit higher than National Oilwell Barco in recent years, with Schlumberger’s revenues growing at an average rate of 6% from $ 27.8 billion in 2016 to $ 32.9 billion in 2019. National Oilwell Barco’s earnings averaged $ 7.3 to 5%. It will be $ 1 billion in 2016 and $ 8.5 billion in 2019. However, both companies reported a 28% reduction in the top line in 2020.
- Schlumberger’s four business segments, Digital & Integration, Reservoir Performance, Well Construction and Production Systems, account for 12%, 28%, 36% and 24% of total revenue, respectively. Uncertain demand conditions have led upstream companies to limit capital spending and increase asset productivity. As you can see, the company’s digital solutions business is observing strong demand during a pandemic.
- National Oilwell Varco’s three business segments, Wellbore Technologies, Completion & Production Solutions, and Rig Technologies, account for 37%, 32%, and 31% of total revenue, respectively. The company observed widespread growth across the segment due to increased drilling and completion services in the pre-pandemic United States and other countries. According to a recent submission, the rig technology segment saw strong growth in the second quarter, supported by renewable energy demand.
- Due to the low number of rigs in the United States and other countries, Schlumberger and National Oilwell Varco observed a 15% (year-on-year) and 21% (year-on-year) reduction in the top line in the first half of 2021, respectively.
2. Returns (profit)
The two companies have incurred significant impairment costs over the last two years and will compare their ability to generate funds. In 2019, Schlumberger generated $ 5.4 billion in operating cash and total revenue of $ 33 billion. This means that the operating cash flow margin is 16%. National Oilwell Varco, on the other hand, had total revenue of $ 8.5 billion, operating cash flow of $ 700 million and a margin of 8%.
- Interestingly, Schlumberger’s cash-generating capacity is almost double that of National Oil Barco, with a significant difference in P / S ratios. In 2020, the P / S multiples of Schlumberger and National Oilwell Barco were 1.4 and 0.9, respectively. In addition, a difference of 0.5 in P / S multiples has been observed between 2019 and 2018.
- Prior to the pandemic, Schlumberger returned 50% of its operating cash to shareholders as dividends and 30% as capital investment as capital expenditures. Meanwhile, National Oilwell Varco has leveraged operating cash as part of its growth strategy.
- In addition to the pandemic shareholder returns, the two companies implemented cash management measures and limited capital expenditures. Given Schlumberger’s higher cash-generating capacity and past dividend trends, getting consistent dividend income is a good choice. (((Related: Guess tech stocks?Why not consider Schlumberger stock instead?)
With each annual submission, Schlumberger and National Oilwell Barco reported long-term debt of $ 16 billion and $ 1.8 billion, respectively. The shrinking asset bases of both companies due to impairment costs and high long-term debt are hampering long-term shareholder returns.
- Higher financial leverage, coupled with continued earnings growth, is a boon to generate surplus equity returns. However, as earnings decline, interest expense puts pressure on the finances, limiting dividend payments and capital expenditures.
- Schlumberger’s high financial leverage compared to National Oilwell Barco and similar earnings reductions in 2020 make SLB stocks a riskier bet.
- In particular, both companies reported a 25% year-on-year reduction in asset base in 2020. (Related: Halliburton stock appears to be overvalued)
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