On Monday, BofA Securities adjusted its price target on SLB (NYSE: SLB), a leading oilfield services company, to $62 from the previous target of $63, while retaining a Buy rating on the stock. The revision reflects a slight modification in the firm's expectations for the company's adjusted EBITDA in 2024 and 2025, with a 1% decrease to $9.25 billion and $10.33 billion, respectively.
This change is due to an anticipated modest weakening in North American markets in 2024 and slightly lower incremental gains in 2025.
The analysis by BofA Securities does not incorporate the potential impact from CHX. Despite the minor adjustment in the earnings forecast, BofA Securities anticipates that SLB will generate over $9 billion in free cash flow, representing 13% of its market capitalization, in the two years spanning 2024-2025. Management at SLB has committed to returning at least $7 billion to its shareholders during the same period, which equates to 10% of the company's market cap.
BofA Securities highlighted that SLB is currently trading at approximately 12 times the firm's estimated earnings per share (EPS) for 2025.
This represents a roughly 30% discount compared to the company's historical average price-to-earnings (P/E) ratio for the second fiscal year. The adjusted discount cash flow (DCF)-based price objective now stands at $62, suggesting a potential 12-month total return of 27%. The new price target is based on a target P/E multiple of 14.9 times for the second fiscal year, which is 15% below SLB's historical average for that period.
InvestingPro Insights
InvestingPro data highlights SLB's robust financial performance with a significant revenue growth of 14.2% over the last twelve months as of Q1 2024. The company's P/E ratio currently stands at 16.62, reflecting a market valuation that is slightly above the adjusted P/E ratio of 16.25 for the same period. Despite concerns over weak gross profit margins, as indicated by a margin of 19.97%, SLB has demonstrated a strong commitment to shareholders with a consistent dividend, having maintained payments for 54 consecutive years, and a current dividend yield of 2.21%.
In terms of InvestingPro Tips, it's worth noting that analysts have revised their earnings expectations downwards for the upcoming period, which may be something investors want to consider alongside the high P/E ratio relative to near-term earnings growth. However, the stock generally trades with low price volatility, which might appeal to investors seeking stability.
For readers looking to delve deeper into SLB's financials and future prospects, there are additional InvestingPro Tips available that can provide more nuanced investment guidance. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking valuable insights that could inform their investment decisions.
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