NEW YORK (TheStreet) -- The oilfield-services stocks are likely to bear the brunt of plummeting crude prices, but Schlumberger (SLB) , which generates more annual revenue than any other company in this space, is in a strong position to weather the storm.
This is due, in part, to the Houston, Texas-based company's financial health, large geographic footprint and the changing industry dynamics related to Halliburton's (HAL) acquisition of Baker Hughes (BHI) .
Futures prices for benchmark Brent and WTI crude oil have tumbled by nearly 32% over the last three months and are hovering near multiyear lows. The pricing environment could remain challenging over the next six months "at a minimum," wrote Topeka Capital Market's analyst Gabriele Sorbara in a Dec. 8 report.
Following OPEC's decision to maintain its existing levels of production, U.S. oil producers will likely respond by following in the footsteps of ConocoPhillips (COP) and Continental Resources (CLR) and reducing capital expenditure plans for 2015. In a Nov. 28 report, Goldman Sachs's energy analysts, led by Brian Singer, predicted an uptick in capital expenditure announcements through February.
The capital expenditure cuts would lead to a slowdown in drilling activity, which could affect several energy sectors, with the oilfield-services group being one of the hardest hit, according to Goldman Sachs. Not surprisingly, the Market Vectors Oil Services ETF (OIH) , which tracks more than two dozen oilfield services companies, has dropped by nearly 70% over the last three months. Schlumberger has also fallen by 19% in the same period.
So far this year, Schlumberger is down 6.5% and currently trades around $84.21. Analysts at Jefferies recently downgraded the stock to "hold," alongside a number of other energy stocks.
That said, the recent pullback over the last few months has only made Schlumberger more attractive.
The company has a strong balance sheet, which is evident in its below-average long-term debt-to-equity ratio and above-average current ratio, according to data compiled by Thomson Reuters. The former metric is used to measure leverage while the latter is a measure of liquidity. For debt-to-equity ratios, the shorter the better, while the opposite is true for the current ratio.