Schlumberger

Limited (NYSE: SLB)

Last Price: $76.63 VIEW: BUY

7/12/2013

Schlumberger Limited (Schlumberger N.V.) is the supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry. The Company's segments include Reservoir Characterization Group, which consists of the principal technologies involved in finding and defining hydrocarbon deposits; Drilling Group, which consists of the principal technologies involved in the drilling and positioning of oil and gas wells, and Production Group consists of the principal technologies involved in the lifetime production of oil and gas reservoirs and includes Well Services, Completions, Artificial Lift, Well Intervention, Subsea, Water Services, Carbon Services and the Schlumberger Production Management field production projects.

Sector: Basic Materials Services Highlights: Schlumberger is the supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry. The stock closed yesterdays trading session at $76.63. In the past year, the stock has hit a 52-week low of $65.42 and 52-week high of $82. The intrinsic value of the stock is higher Industry: Oil & Gas Equipment &

than the current price. SLB has a market cap of $101.93 billion and is part of the Basic materials sector. GROWTH AND BALANCE SHEET The company reported that it earned $1,256 million, or 94 cents basic earnings per share, for the quarter that ended March 31. That's down from $1,282 million, 97 cents basic earnings per share for the same quarter last year. Revenue increased 7.6 percent, to $10,668 million from $9,918 million, with revenue increasing in every Reservoir Characterization, Drilling, and Production; and falling only in Eliminations and Other. SLBs consensus earnings forecast for the quarter ending June 2013 is of $1.06 to $1.19 per share. GAAP operating margin was 19.0 percent, compared to 19.59 percent in the first quarter of fiscal 2012. The decline is due to decrease in the North America operating region which is due to pricing pressure for Well Services production technologies on land. Cash flow from operating activities was $1,119 million, compared to $758 million in the first quarter of fiscal 2012. VALUATION SLB PE stands at 18.81 above the industry average of 18.00 and above the S&P 500 average of 18.41. The company is currently trading above the preferable P/E ratio of 15x and over the last five years, the companys shares have traded in the range of 16.43x to 19.84x trailing 12-month earnings. SLB's current Price/Sales of 2.37 is above the average of its industry, of 1.21. SLBs head to head comparison to its main competitors shows that the company has better gross margin and operating margin, higher net income and EPS and it is a market leader. SLB trading at about the same P/E but a higher P/S multiples than the main competitors. The stock is currently trading 19.6% below its intrinsic value of $99.91 this suggests that the stock is undervalued at these levels. The beta of 1.81 implies higher volatility of the stock with respect to the S&P 500. SLB has not shown satisfying earnings consistency over the last five, except for the one dip in 2009 which can be attributed to the global financial crisis. SLBs earnings per share over the last five years have grown by -1.68%. However, if we take out the EPS at pre crisis it can be seen that from 2009 until 2012, the earnings per share have grown by 11.68%. The current quarter earnings in comparison to the same quarter last year have stayed nearly the same, growing by -1% which is well below the required level of 15%. SLBs current price levels are only 6.5% below the 52 week high of $82, and the technical indicators are neutral. The majority of the analyst ratings are buy. SLBs Total Debt/Equity of 31.02 is above the required maximum, however it is well below the industry average of 58.44. SLB have a dividend payout ratio of 35%. RECOMMENDATION for next 6 months: We initiate our coverage with BUY. The company has demonstrated neutral signs but the valuation is cheap at current price level. SLB is up 11.55% year-to-date. Our overall score for SLB is 7.00.

For options trading we suggest: Schlumberger Limited VALUATION Market Cap: Enterprise Value P/E PEG Ratio Price/Sales Price/Book Enterprise Value/Revenue Enterprise Value/EBITDA Dividend Yield Held by insiders NEWS and CALENDAR Thu, Jul 11, 2013 Are Oil and Gas MLPs Still the Segment of the Oil and Gas Chain to Invest in? Thu, Jul 11, 2013 Better Fracking Through Sound-Sensing Fiber Optics Wed, Jul 10, 2013 Is the Natural Gas Sector the Best Place to Park your Investable Cash? Tue, Jul 9, 2013 Schlumberger NV (SLB): Today's Featured Basic Materials Winner SLB Strengths Global market leader Diversified geographic presence Technical excellence SLB Weakness SLB 101.93B 106.82B 18.81 0.96 2.37 2.86 Beta 1 Month Stock Returns Year to Date Stock Returns 1 Year Stock Returns 3 Year Stock Returns 52-Week Change 1.81 7.33% 11.55% 19.08% 37.14% 14.85% 25.49% 82 65.42 73.37 74.99 Buy the August 2013 call with a strike of 77.50 priced at $0.67 per contract Net credit to start: $0.67

2.49 S&P500 52-Week Change 9.57 52-Week High 1.50% 52-Week Low 50-Day Moving Average 0.21% 200-Day Moving Average

High profile litigation Environmental issues Decline in revenues BHI 21.53B 58,900 -0.02 21.24B 0.18 3.70B 0.1 1.20B 2.71 18.01 0.96 1.02 HAL 41.24B 73,000 0.02 28.61B 0.15 5.73B 0.14 1.93B 2.14 20.56 0.8 1.44 WFT 10.93B 70,000 0.07 15.46B 0.21 2.40B 0.07 879.00M -1.15 N/A 0.48 0.7 Industry 447.92M 1.62K 0.23 442.85M 0.3 66.73M 0.1 N/A 0.1 18 1.02 1.21

Competitor Comparison SLB Market Cap: 101.73B Employees: 118,000 Qtrly Rev Growth 0.08 Revenue 42.90B Gross Margin 0.21 EBITDA 11.17B Operating Margin 0.18 Net Income 5.42B EPS 4.07 P/E 18.81 PEG 0.96 P/S 2.37

Stock valuation model

The model rates stocks from 1 to 10, with 10 being the best using a system of advanced mathematics to determine a stock's expected risk and return. I am using different fundamental and technical factors in order to rank a stock. Intrinsic value of the stock Investors should buy stocks selling at a discount to their intrinsic value, and then patiently wait for the fair value of their investments to be realized. SLB Intrinsic Value EPS ttm EPS Growth (Assumption) PE DIVIDEND PAYOUT EXPECTED STOCK RETURN in 2022 Forecasted Stock Price Earnings Per Share after the 10th year TOTAL DIVIDENDS 24.06

4.07 1.09 27.13 35% 1.11

269.75 9.94

Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 TOTAL EPS

EPS 4.45 4.87 5.32 5.82 6.36 6.96 7.61 8.32 9.09 9.94 68.73

Forecasted Stock Price in 2022+DIVIDENDS Net Present Value

293.80 99.91

SLBs intrinsic value is $99.91 the current price is $76.68, the stock trades 30% below its fair value. The Sensitivity analysis of the stock varying the growth rate of the EPS are presented in the table below. EPS Growth (Assumption) Value 7% 81.02 8% 88.64 9% 96.91 9.34% 99.91 10% 105.88 11% 115.6 12% 126.14 Based on the prospects of the company the valuation range is from $81.02 to $126.14. Financials The financial health of the company the higher the better, we evaluate all the financial ratios of the company. Sentiment Investors sentiment for the stock. Analyst ratings The model assigns a value according to analysts recommendation for the stock. Analyst rating on Reuters.com is 17 Buy, 13 Outperform, and 4 Hold. Earnings Consistency We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. SLBs annual EPS for the last 5 years were 4.42, 2.61, 3.37, 3.47, and 4.06 this type of earnings action is favorable. Total Debt/Equity

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry SLBs Total Debt/Equity of 31.02 is above the required maximum, however it is well below the industry average of 58.44. EPS This Quarter VS Same Quarter Last Year The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. SLBs EPS growth for this quarter relative to the same quarter a year earlier is -1 %, below our target. Annual Earnings Growth This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. SLBs annual earnings growth rate over the past five years is -1.68%, below our target growth rate. Current Price Level Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. SLB's 52 week high is $82.0 current price is $76.63, is 6.50% below the 52 week high. P/E Ratio The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 18.81 the average industry P/E ratio is 18 and is above the S&P 500 P/E ratio of 18.41. Insider Ownership When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 0.21% of SLB stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

Technical Analysis The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value. SLB is trading in the range of $70.25 - $77.22 in the past 30 days. The stock has been showing support around $71 and resistance in the $74.60 range. The stock is trading above the 50-Day Moving Average and 200-Day Moving Average. RSI(14): 63.97. From the graph on page 1 it can be seen that the stock has bounced off from a long support level around $71, and has possibly broken a downward sloping trend line this week. The price is currently approaching a resistance level at around $77.50 that was tested three times this year. Our indicators give a neutral view on SLB. Schlumberger Limited COMPANY:

SLB
9 8 9 9 7 7 3 3 7 6 3 6 77

the stock Intrinsic value of

Financials Sentiment Analyst ratings Earnings Consistency Total Debt/Equity Quarterly EPS change Annual Earnings Growth Current Price Level P/E Ratio Insider Ownership Technical Analysis

SCORE RECOMMENDATION:

7.00 BUY