Schlumberger’s Acquisition of Cameron Will Strengthen Its Wide Moat
Though the valuation seems a bit rich, we otherwise view the acquisition favorably, says Morningstar’s Allen Good.
On Wednesday,
Though the valuation seems a bit rich relative to our fair value estimate for Cameron, we otherwise view the acquisition favorably. Schlumberger already was partnered with Cameron in the OneSubsea joint venture, which combined the former's large customer base and reservoir management expertise with the latter's subsea experience and manufacturing capability. Peers later replicated this type of partnership, but we viewed OneSubsea as best of the breed. Now, Schlumberger is in effect adding Cameron's surface operations, which primarily focus on North American onshore activity, to its reservoir management expertise, which should open new avenues of growth. It will also leave Schlumberger better equipped to compete in what is likely to be a sustained low oil price environment with ongoing pressure on service providers.
Schlumberger's wide economic moat is based in part on the breadth of products and services it offers, which creates meaningful switching costs through process and product integration. On initial view is that the addition of Cameron strengthens this advantage, leaving our wide moat rating intact. We will incorporate the acquisition into our fair value estimates for Schlumberger and Cameron and adjust as necessary.