Options Trade – Schlumberger Limited (NYSE:SLB) Calls 
Sunday, September 28, 2014

**OPTIONS TRADE: Buy the SLB Jan 2015 110.000 call (SLB150117C00110000) at or under $2.60, good for the day. Place a protective stop loss at $1.05 and a pre-determined sell at $4.70.

by Ian Harvey

September 28, 2014


Oilfield services companies have been generating big profits over the past three years due to the increase in drilling and production activities. The steady increase in demand for energy resources and the shift towards oil and liquid plays have resulted in most of the exploration and production companies investing massive amounts of cash flows to boost production. This has further resulted in a very strong demand for oilfield services companies because they provide the technology, products and information solutions to the oil and gas industry worldwide. Further, market fundamentals are also strong as the demand for energy resources keeps rising and E&P companies keep investing in growth opportunities to enhance production.

Schlumberger Limited (NYSE: SLB), a supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry, is among the oilfield services companies that have set very strong footholds to keep capitalizing on the demand for oilfield products and services. Schlumberger has a diversified business model operating in three business segments including reservoir Characterization, production and drilling segments. In addition to that, it has extensive global foot-prints with around 126,000 employees working in over 85 countries.

Its reservoir characterization business segment provides technologies including wireline services and softwares to customers that reduces sub-surface risk and improves well production. Their drilling technologies enhances drilling efficiency, optimize well placement and assure wellbore integrity and production group provides new production group technologies, enhances operational efficiencies, maximize reservoir recovery and accelerate production. Its innovative product and technologies in each business segment has led it to generate, on average, a 17% growth in sales and a 16.4% growth in earnings in the past three years.

Technical Details

Schlumberger Limited. has a 52 week low of $84.91 and a 52 week high of $118.76. The stock’s 50-day moving average is $106.5 and its 200-day moving average is $104. The company has a market cap of $132.2 billion and a P/E ratio of 20.56.


Schlumberger Limited. last posted its quarterly earnings results on Thursday, July 17th. The company reported $1.37 earnings per share (EPS) for the quarter, beating the consensus estimate of $1.36 by $0.01. The company had revenue of $12.05 billion for the quarter, compared to $11.24B in Q1 of 2014 and $11.18 billion in the past year quarter. This represents a very strong growth of 7% sequentially and 8% on year-on-year basis. Strong growth in sales was led by its wireline services, seismic activity, pressure pumping and completions as well as the software sales which are also rising. Additionally, with the latest technologies and services in its portfolio combined with enhanced operational efficiencies, the company is getting higher margins on its sales. In the latest quarter, its income from continuing operations increased by 17% on a year-on-year basis and by 13% sequentially.

During the same quarter in the previous year, the company posted $1.15 earnings per share. The company’s revenue for the quarter was up 7.8% on a year-over-year basis. On average, analysts predict that Schlumberger Limited. will post $5.66 earnings per share for the current fiscal year.

Analysts Opinions

Analysts at KLR Group upgraded shares of Schlumberger Limited. to an “outperform” rating in a research note last Thursday.

The company has also been the subject of a number of other research reports:-

• Analysts at Iberia Capital upgraded shares of Schlumberger Limited. from a “sector perform” rating to an “outperform” rating in a research note on Thursday. They now have a $120.00 price target on the stock, down previously from $137.00.

• Seperately, analysts at Wells Fargo & Co. initiated coverage on shares of Schlumberger Limited. in a research note on Wednesday. They set an “outperform” rating on the stock.

• Finally, analysts at Global Hunter Securities raised their price target on shares of Schlumberger Limited. from $9.00 to $126.00 in a research note on Monday, July 21st. They now have a buy rating on the stock.

Schlumberger Limited. has received an average rating of “Buy” from the thirty-one ratings firms that are covering the stock. One research analyst has rated the stock with a hold recommendation and twenty-seven have given a buy recommendation to the company. The average 12-month price target among analysts that have issued ratings on the stock in the last year is $132.


A massive surge in Schlumberger Limited share price clearly tells presents a picture that the company remains successful in enhancing investors' confidence in its worldwide operations, innovative technologies and strong financial performance. However, the stock is on a dip with the recent market correction and the fall in prices. Amidst all this, it is believed that this presents an attractive opportunity to initiate a position in a company because the market fundamentals look strong as the overall global economic outlook continues to stabilize.

Moreover, it will be helped by the US recovery which was affected by the harsh weather conditions and it is anticipated that the U.S. land rig count will grow which will result in mid-single digit growth in revenue. Europe, Africa, CIS and Russia are also showing recovery from the effects of the winter season. Both drilling and seismic activity in the key markets of Saudi Arabia and Australia has been increasing. In addition to that, companies in the E&P industry and the integrated oil and gas industry continue to invest more in growth opportunities to keep producing steady growths in their production level so as to meet the demand.

Schlumberger has set very strong footholds for future growth with its extensive footprint and innovative products and technologies. The demand for oilfield services is consistently increasing due to the increased drilling and production activities. Overall, the long-term fundamentals for the oil field services companies look strong. Schlumberger is in a sound financial and cash position. Therefore, the dip in its share price presents an attractive buying opportunity.

Therefore, based on the facts above the following options trade is recommended…..

**OPTIONS TRADE: Buy the SLB Jan 2015 110.000 call (SLB150117C00110000) at or under $2.60, good for the day. Place a protective stop loss at $1.05 and a pre-determined sell at $4.70.

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