The energy sector has been in focus lately amid a substantial dip in oil prices, with WTI crude futures (CLV24) dropping below $70 per barrel to hit new year-to-date lows. This slump is mainly due to worries about global economic growth, especially in China, and fears about oversupply. Analysts at Goldman Sachs and Morgan Stanley have recently slashed their oil price forecasts, while Citi was already predicting prices in the $60s going into 2025, unless OPEC+ makes further cuts.
With crude futures wallowing near their lows, two energy stocks - Schlumberger Limited (SLB) and Halliburton Company (HAL) - are worth a look for income-focused investors. Both of these oilfield services giants are trading near 52-week lows of their own, offering a tempting opportunity for investors looking to maximize their yield on these reliable dividend stocks.
With these oilfield industry stalwarts exploring annual lows, it might just be the right time to consider adding them to your investment mix. Let's dive in and see what HAL and SLB have to offer energy investors in today's market.
Schlumberger Limited (SLB)
Valued at $58.05 billion, Schlumberger Limited (SLB) is a big player in energy tech, offering advanced solutions for everything from drilling to production in the oil and gas world. Operating in over 120 countries, SLB uses cutting-edge science and tech to tackle exploration and production challenges. They're also focused on innovation and sustainability, working to reduce fossil fuel emissions and support the energy transition.
SLB is down 32.8% over the past 52 weeks, and 22.4% so far in 2024. The stock set a new 52-week low of $40.35 earlier in Monday's session.
With a forward price/earnings (P/E) ratio of 11.61, SLB is priced right in line with its energy sector peers, and it's valued at a discount to its own historical averages.
Plus, SLB is known for rewarding its shareholders. The stock's quarterly dividend of $0.28 translates to a forward dividend yield of 2.71%, backed by a conservative payout ratio of 32.41%. The company has increased its dividend for three consecutive years, and SLB plans to return about $7 billion to shareholders in 2024 through dividends and share buybacks.
In the second quarter of 2024, SLB reported earnings of $0.85 per share, aligning with analyst expectations. Revenue hit $9.14 billion, up 5% sequentially and 13% year-over-year. The company generated $1.44 billion in cash flow from operations and $776 million in free cash flow. CEO Olivier Le Peuch is optimistic about the future, projecting mid-teens EBITDA growth for the year, thanks to strong international activity and strategic acquisitions.
SLB is also making strategic moves to stay ahead. The company is collaborating with Palo Alto Networks (PANW) to enhance cybersecurity solutions for the energy sector, combining SLB's domain expertise with Palo Alto Networks' platform-based cybersecurity solutions.
Additionally, SLB has entered a 10-year partnership with TotalEnergies (TTE) to co-develop scalable digital solutions for improved performance and efficiency across the energy value chain. These collaborations demonstrate SLB's commitment to driving innovation and addressing key challenges in the industry. The company is also well-positioned to benefit from the industry's increasing emphasis on emissions reduction and carbon capture and sequestration (CCS) technologies.
Analysts maintain a “strong buy” consensus on SLB, with 17 out of 20 analysts recommending a “strong buy,” 2 suggesting a “moderate buy,” and only 1 advising a “hold.” The mean target price for SLB stands at $65.32, representing a significant upside potential of 61.6% from the current price.
Halliburton Company
At $25.3 billion by market cap, Halliburton Company (HAL) is another big name in the oilfield services industry. It provides a wide array of products and services that help with oil and gas exploration, drilling, and production. It's known for optimizing extraction processes, making it a go-to partner for energy companies around the world.
In terms of stock performance, Halliburton has had a tough year. HAL has notched a 52-week drop of 30.5% and a year-to-date decline of 20.6%, and the shares are fresh off a 52-week low of $28.43 on Friday.
HAL's forward P/E ratio of 9.27 is a discount to the sector median, suggesting the stock might be undervalued.
Halliburton currently offers a forward dividend yield of 2.38%, based on its quarterly cash payout of $0.17, and its payout ratio of around 20% suggests the dividends are well-covered by earnings.
For the second quarter of 2024, Halliburton posted net income of $0.80 per share, with revenue hitting $5.8 billion and an operating margin of 18%. The company generated $1.1 billion in cash flow from operations and about $800 million in free cash flow, highlighting its efficiency and resilience.
Halliburton has recently announced significant partnerships to enhance its technological capabilities. The company has entered an iEnergy Partner agreement with Armada to integrate edge computing solutions, leveraging IoT and AI for improved operational efficiency in remote locations. Additionally, Halliburton Labs has welcomed Adena Power to its collaborative environment, focusing on innovative sodium battery technology for energy storage solutions. These collaborations underscore Halliburton's commitment to innovation and its strategic focus on expanding its technological footprint.
Wall Street has a “strong buy” consensus on HAL, with 17 out of 21 recommending a “strong buy,” 2 suggesting a “moderate buy,” and 2 advising a “hold.” The mean target price for HAL stands at $43.62, representing a significant upside potential of 52% from the current price.
Conclusion
Schlumberger Limited (SLB) and Halliburton Company (HAL) present compelling investment opportunities for yield-focused investors looking to capitalize on the current cyclical low in oil prices. With their strong buy ratings, impressive upside potential, and healthy yields, these energy giants are well-positioned to weather the challenges of the sector and deliver solid returns in the long run. So, if you're looking to scoop up some high-quality energy stocks at a bargain, SLB and HAL might just be worth buying on the dip.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
