Stock Analysis on Net
Stock Analysis on Net

Schlumberger Ltd. (NYSE:SLB)

Present Value of Free Cash Flow to the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Schlumberger Ltd., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 16.61%
01 FCFF0 4,445
1 FCFF1 4,321 = 4,445 × (1 + -2.81%) 3,705
2 FCFF2 4,344 = 4,321 × (1 + 0.55%) 3,195
3 FCFF3 4,514 = 4,344 × (1 + 3.90%) 2,847
4 FCFF4 4,841 = 4,514 × (1 + 7.26%) 2,618
5 FCFF5 5,355 = 4,841 × (1 + 10.61%) 2,484
5 Terminal value (TV5) 98,765 = 5,355 × (1 + 10.61%) ÷ (16.61% – 10.61%) 45,806
Intrinsic value of Schlumberger Ltd. capital 60,654
Less: Debt (fair value) 11,323
Intrinsic value of Schlumberger Ltd. common stock 49,331
 
Intrinsic value of Schlumberger Ltd. common stock (per share) $34.51
Current share price $49.44

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

1 See details »

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.

Weighted Average Cost of Capital (WACC)

Schlumberger Ltd., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 70,666 0.86 18.91%
Debt (fair value) 11,323 0.14 2.23% = 2.57% × (1 – 13.20%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,429,337,724 × $49.44
= $70,666,457,074.56

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (19.00% + 18.00% + 19.00% + 7.00% + 3.00%) ÷ 5
= 13.20%

WACC = 16.61%

FCFF Growth Rate (g)

FCFF 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)
Interest expense 503 490 539 563 609
Net income (loss) attributable to SLB 4,203 3,441 1,881 (10,518) (10,137)
 
Effective income tax rate (EITR)1 19.00% 18.00% 19.00% 7.00% 3.00%
 
Interest expense, after tax2 407 402 437 524 591
Add: Dividends declared 1,425 921 700 1,215 2,770
Interest expense (after tax) and dividends 1,832 1,323 1,137 1,739 3,361
 
EBIT(1 – EITR)3 4,610 3,843 2,318 (9,994) (9,546)
 
Short-term borrowings and current portion of long-term debt 1,123 1,632 909 850 524
Long-term debt, excluding current portion 10,842 10,594 13,286 16,036 14,770
Total SLB stockholders’ equity 20,189 17,685 15,004 12,071 23,760
Total capital 32,154 29,911 29,199 28,957 39,054
Financial Ratios
Retention rate (RR)4 0.60 0.66 0.51 — —
Return on invested capital (ROIC)5 14.34% 12.85% 7.94% -34.51% -24.44%
Averages
RR 0.59
ROIC -4.77%
 
FCFF growth rate (g)6 -2.81%

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).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 503 × (1 – 19.00%)
= 407

3 EBIT(1 – EITR) = Net income (loss) attributable to SLB + Interest expense, after tax
= 4,203 + 407
= 4,610

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,610 – 1,832] ÷ 4,610
= 0.60

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,610 ÷ 32,154
= 14.34%

6 g = RR × ROIC
= 0.59 × -4.77%
= -2.81%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (81,989 × 16.61% – 4,445) ÷ (81,989 + 4,445)
= 10.61%

where:

Total capital, fair value0 = current fair value of Schlumberger Ltd. debt and equity (US$ in millions)
FCFF0 = the last year Schlumberger Ltd. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Schlumberger Ltd. capital

FCFF growth rate (g) forecast

Schlumberger Ltd., H-model

Microsoft Excel
Year Value gt
1 g1 -2.81%
2 g2 0.55%
3 g3 3.90%
4 g4 7.26%
5 and thereafter g5 10.61%

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 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= -2.81% + (10.61% – -2.81%) × (2 – 1) ÷ (5 – 1)
= 0.55%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -2.81% + (10.61% – -2.81%) × (3 – 1) ÷ (5 – 1)
= 3.90%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -2.81% + (10.61% – -2.81%) × (4 – 1) ÷ (5 – 1)
= 7.26%