Stock Analysis on Net

Schlumberger Ltd. (NYSE:SLB)

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

Schlumberger Ltd., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 19.46%
01 FCFE0 3,456
1 FCFE1 3,135 = 3,456 × (1 + -9.30%) 2,624
2 FCFE2 3,018 = 3,135 × (1 + -3.72%) 2,115
3 FCFE3 3,075 = 3,018 × (1 + 1.87%) 1,803
4 FCFE4 3,304 = 3,075 × (1 + 7.46%) 1,622
5 FCFE5 3,735 = 3,304 × (1 + 13.04%) 1,535
5 Terminal value (TV5) 65,773 = 3,735 × (1 + 13.04%) ÷ (19.46%13.04%) 27,032
Intrinsic value of Schlumberger Ltd. common stock 36,731
 
Intrinsic value of Schlumberger Ltd. common stock (per share) $26.01
Current share price $43.10

Based on: 10-K (reporting date: 2023-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Schlumberger Ltd. common stock βSLB 1.62
 
Required rate of return on Schlumberger Ltd. common stock3 rSLB 19.46%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rSLB = RF + βSLB [E(RM) – RF]
= 4.65% + 1.62 [13.79%4.65%]
= 19.46%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Schlumberger Ltd., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends declared 1,425 921 700 1,215 2,770
Net income (loss) attributable to SLB 4,203 3,441 1,881 (10,518) (10,137)
Revenue 33,135 28,091 22,929 23,601 32,917
Total assets 47,957 43,135 41,511 42,434 56,312
Total SLB stockholders’ equity 20,189 17,685 15,004 12,071 23,760
Financial Ratios
Retention rate1 0.66 0.73 0.63
Profit margin2 12.68% 12.25% 8.20% -44.57% -30.80%
Asset turnover3 0.69 0.65 0.55 0.56 0.58
Financial leverage4 2.38 2.44 2.77 3.52 2.37
Averages
Retention rate 0.67
Profit margin -8.44%
Asset turnover 0.61
Financial leverage 2.69
 
FCFE growth rate (g)5 -9.30%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income (loss) attributable to SLB – Dividends declared) ÷ Net income (loss) attributable to SLB
= (4,2031,425) ÷ 4,203
= 0.66

2 Profit margin = 100 × Net income (loss) attributable to SLB ÷ Revenue
= 100 × 4,203 ÷ 33,135
= 12.68%

3 Asset turnover = Revenue ÷ Total assets
= 33,135 ÷ 47,957
= 0.69

4 Financial leverage = Total assets ÷ Total SLB stockholders’ equity
= 47,957 ÷ 20,189
= 2.38

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.67 × -8.44% × 0.61 × 2.69
= -9.30%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (60,864 × 19.46%3,456) ÷ (60,864 + 3,456)
= 13.04%

where:
Equity market value0 = current market value of Schlumberger Ltd. common stock (US$ in millions)
FCFE0 = the last year Schlumberger Ltd. free cash flow to equity (US$ in millions)
r = required rate of return on Schlumberger Ltd. common stock


FCFE growth rate (g) forecast

Schlumberger Ltd., H-model

Microsoft Excel
Year Value gt
1 g1 -9.30%
2 g2 -3.72%
3 g3 1.87%
4 g4 7.46%
5 and thereafter g5 13.04%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= -9.30% + (13.04%-9.30%) × (2 – 1) ÷ (5 – 1)
= -3.72%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= -9.30% + (13.04%-9.30%) × (3 – 1) ÷ (5 – 1)
= 1.87%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= -9.30% + (13.04%-9.30%) × (4 – 1) ÷ (5 – 1)
= 7.46%