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Schlumberger Is Heading to $90

Stocks in this article: SLB HAL BHI

NEW YORK ( TheStreet) -- Since reaching a high of $77.84 on May 21, shares of energy giant Schlumberger (SLB) have been down by as much as 10%, reaching a low of $70.25 on June 24. Since then, however, the stock has bounced back, gaining as much as 9% on virtually no news at all. (SLB closed Wednesday at $82.16.)

This pretty much explains the volatile nature of the oil services sector. Investors have had a hard time making up their minds on this sluggish industry, which has been hurt by feeble prices and soft rig counts. Although Schlumberger has been by far the leader of a group that includes rivals Halliburton (HAL) and Baker Hughes (BHI), Schlumberger has had a tough time overcoming weakness in North America.

By contrast, Halliburton, which has long played second fiddle to Schlumberger, is now performing extremely well in international markets. This has begun to make the battle between the two giants all the more interesting.

In other words, the gap between the two companies is not as wide as it used to be. This has now placed Schlumberger under a microscope. Investors are now wondering if the stock, which has always received the benefit of the doubt, still deserves the same level of respect.

I believe Schlumberger answered this question. With second-quarter revenue growing 7% year over year, which significantly outperformed both Halliburton and Baker Hughes, which posted revenue growth of 1% and 3%, respectively, this should dispel any worries Schlumberger is losing its lead. As expected, last month the company posted strong gains in international markets, which grew 10% year over year and 6% from the April the quarter.

The major concern, however, has been with weakness in North America. Although this quarter Schlumberger didn't post any growth in the region on a year-over-year basis, it was nonetheless an improvement from the 3% decline posted in the April quarter. In fact, the company managed to squeeze out a decent 2% sequential gain.

It's also encouraging that management has figured out ways to offset the slowdown in North America by posting better-than-expected improvements in areas like Africa, Mideast/Asia and Russia. On a segmental basis, with production up 5%, while drilling and reservoirs characterization posted gains of 7% and 9%, respectively, I don't believe management has gotten enough credit for having effectively diversified this operation. I can't say that there is a "weak link" in any part of the business.

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