Guggenheim’s Michael LaMotte and team explain why they believe it’s time to sell Halliburton (HAL) and buy Schlumberger (SLB):
In our view, one of the more obvious examples of the valuation disconnect today is Schlumberger vs. Halliburton, and as a result, we have removed Halliburton from the firm’s Best Ideas list, and replaced it with Schlumberger. For starters, on a forward EV/EBITDA basis, Schlumberger now trades at a 30% discount to its 10-year average relative multiple vs. Halliburton—a discount that represents nearly a 2-standard deviation from the mean.
Additionally, while Schlumberger may not have the concentration of U.S. revenue of Halliburton, we believe that investors continue to under-estimate the incremental earnings contribution that Schlumberger should generate from its data and analytics software, transformation initiatives, integration of Cameron, and share repurchases; specifically, we estimate that Schlumberger can generate $8-10 in EPS in 2020 vs. the 2014 peak of $5.57.
Shares of Halliburton have advanced 0.3% to $44.87 at 10:19 a.m. today, while Schlumberger has ticked up 0.1% to $81.25.
By: Ben Levisohn (Barron's).
Photo 1: International Business Times.
Photo 2: The Wall Street Journal.
Review: Emerging Market Formulations & Research Unit, FLAGSHIP RECORDS.
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