Undervalued by 21%, This Stock Could Be a Smart Play on a Hot Trend

SLB is among the cheapest stocks with a moat in our global energy coverage. We think this undervalued stock deserves a premium, given the company’s scale, suite of solutions, competitive position in some of the more attractive services markets, and technological advantage. SLB holds a leading position in digital oilfield services and may also be a good play on the evolution of artificial intelligence in the industry. We like the risk/reward that the shares offer for patient investors, particularly given management’s intent to repurchase $2.3 billion of stock in 2025. SLB is among our analysts’ 33 Undervalued Stocks to Buy for 2025. It’s also one of chief US market strategist Dave Sekera’s 3 More Stocks to Buy Before They Rebound.

SLB focuses on three growth engines: core, digital, and new energy. Our thesis mostly relies on the first two, specifically the offshore business outside North America and digital offerings. Market bears seem concerned that the exploration and production capital expenditure cycle is turning and that the acquisition of ChampionX dilutes shareholder value. We disagree with the latter point, and we think parts of the cycle could be more resilient and longer lasting than the market appreciates. We do expect the broader market will face reductions in discretionary short-cycle spending, given concerns about an oversupplied commodity market and weak demand in China. But the fundamentals underlying long-term project spending, particularly in offshore international, look intact.

Key Morningstar Metrics for SLB

• Fair Value Estimate: $54
• Star Rating: 4 Stars
• Economic Moat Rating: Narrow
• Uncertainty Rating: Medium

Economic Moat Rating

We assign SLB a narrow economic moat rating based primarily on intangible assets and cost advantage. We also see switching costs in the digital and integration segment, particularly related to its digital solutions. SLB’s heavy investment in research and development vastly outpaces competitors’ and allows the company to command pricing power for certain solutions, economies of scale, and economies of scope. SLB’s pricing power is a byproduct of multiple factors, including intellectual property, engineering prowess, a decadeslong record of performance, and relationships. We think SLB’s digital advantage should only grow stronger following the ChampionX acquisition.

Read more about SLB’s moat rating.

Fair Value Estimate for SLB Stock

Our fair value estimate is $54 per share. We value SLB at roughly 15.5 and 13.5 times 2025 and 2026 earnings, respectively, and nearly 7.5 and 7 times on a 2025 and 2026 enterprise value/EBITDA basis. We expect global final investment decisions to total roughly $100 billion annually during 2025-27, on average. So, we expect SLB can increase its international top line at a more than 4.5% compound annual rate from 2024 to 2029. We expect digital will climb to a $4 billion revenue contribution by the end of the decade. That revenue is accompanied by incremental margins at a premium to SLB’s core business. We also expect the pending acquisition of ChampionX to create value for shareholders.

Read more about SLB’s fair value estimate.

Risk and Uncertainty

SLB’s prime risk and uncertainty stem from commodity pricing affecting customers’ discretionary short-cycle spending. In 2024, oil pricing appeared to be most affected by global concerns about an oversupplied market as well as weak demand from China. Other risks include the broader macroeconomic environment and geopolitical conflicts. Other geopolitical-specific risks include a lack of discretion in choosing business partners relative to other industries, particularly as state-sponsored counterparties can seize oil assets. From an environmental, social, and governance standpoint, we believe the strongest risk is the possible decline in oil demand over time.

Read more about SLB’s risk and uncertainty.

SLB Bulls Say

• SLB should benefit from a sanctioned project pipeline of $100 billion per year during 2025-27 and should win a growing set of global offshore projects.
• The company holds a leading position in digital oilfield services, so it should disproportionately benefit from this nascent trend.
• The market underappreciates SLB’s ability to achieve its pretax synergy target of $400 million annualized with the ChampionX deal, such as duplicative facilities in chemical operations or headcount reductions and improved supply chain sourcing in the acquired operations.

SLB Bears Say

• The cycle is turning amid concerns about an oversupplied oil market and weak demand in China, so SLB’s customers could start shutting off their capex spigots.
• Market consolidation of E&P customers, particularly in the US, will hurt services firms like SLB in terms of pricing, particularly because most cost synergies extracted by merged E&P firms come from services-related revenue.
• SLB could be significantly overpaying for ChampionX with its undervalued stock and won’t hit its vague revenue synergy target of roughly $100 million.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of Feb. 19, 2025.