Schlumberger’s International Success Shows Why Better Days Are Ahead

Oilfield services giant Schlumberger (SLB -1.17%) rode to solid profits on the back of its international operations, a feat that will be hard for peers Halliburton (HAL -1.04%) and Baker Hughes Incorporated (BHI) to match as they report their annual results next week.

Simply impressive
Beating Wall Street estimates by $0.02, Schlumberger booked diluted earnings of $1.35 per share for the fourth quarter -- an impressive 28% higher than last year's fourth quarter. But more importantly, from a business standpoint, the 800-pound gorilla in the oilfield services industry grew its revenue for the fourth consecutive year. And with this, the Dutch-registered, Houston-headquartered company raises investor hopes that there's a lot more growth to be captured in the coming years, especially from its growing international operations. But before that, let's dig into the numbers to see how the company has performed in the past 12 months.

Total revenue from continuing operations came in at $45.3 billion for 2013, a solid 8.4% growth from 2012. Once again, international operations took the limelight, as revenue from this segment grew an encouraging 11% -- or $3.2 billion in absolute numbers. Investors must note that this is in spite of a temporary shutdown in southern Iraq following a violent skirmish between Schlumberger and Shi'ite workers in that region.

A steady advance in tough conditions
As for North American operations, Schlumberger continues to tackle challenges in the land market but grew annual revenue by a commendable $400 million. Investors will know that uncompetitive natural gas prices forced unconventional drilling in the United States to take a back seat, which in turn affected the oilfield services companies. Also, with stiff competition for market share from various players such as Cameron International (CAM.DL), Halliburton and Baker Hughes, the crowded market provided little or no chance for growth. However, Schlumberger's exposure to the Gulf of Mexico proved to be vital, aiding the 3% revenue growth in North America.

International operations: Investors, watch out
Internationally, the Middle Eastern and Asian operations grew the most. Revenue, at $10.8 billion, was 23% higher than in 2012. This market now represents 24% of total revenue -- up from 21% the previous year. However, growing operations is only a part of the story. As an investor, what I like to see is whether the operations grew efficiently and profitably. And I wasn't disappointed. Operating margin from the Middle Eastern Market grew to 25% from 22% last year.

Latin American revenue grew 3% sequentially, but importantly, operating margins grew to 21.2%. Taking a longer-term view, a growing market seems to be India. Schlumberger has been awarded an 18-month multiple-services contract by Oil India for designing, drilling, and completing six horizontal wells. Currently, India has a niche unconventional drilling market. But being the emerging economy that it is, there's a high probability that international oil companies will make a bigger foray into the country in the near future.

Could the stock be undervalued?
From an investor perspective, Schlumberger's stock seems to be the cheapest among oil services companies:

Source: Yahoo! Finance.

However, in terms of future growth, Halliburton noses ahead slightly. In any case, Schlumberger looks undervalued. Given the solid growth in almost all areas -- geographically as well in terms of its segments -- Schlumberger could be the stock for the long-term investor who isn't looking for a risky company to own.

Foolish bottom line
Schlumberger showed solid global growth, while displaying resilience in the North American markets where pricing pressure still exists because of high competition. The company also increased its quarterly dividend by 28%. In all, this stock definitely give investors an edge in terms of solid long-term returns.