Schlumberger Limited (SLB) will report its first-quarter results on April 19. Wall Street expects the company to post higher revenue and earnings in the first quarter. With SLB’s earnings expected shortly, I have discussed why waiting for an opportune entry point in the stock could be wise.
For the first quarter, SLB’s EPS and revenue are expected to increase 18.9% and 12.5% year-over-year to $0.75 and $8.70 billion, respectively. The company has a solid earnings history, beating the consensus estimate in each of the trailing four quarters. For the first quarter, SLB expects revenue growth in the low teens and EBITDA growth in the mid-teens. SLB announced it will return $7 billion to shareholders over the next two years.
SLB intends to increase its 2024 shareholder returns to $3 billion and set a target of $4 billion for 2025. It forecasts over $100 billion in global offshore FIDs (final investment decisions) in 2024 and 2025. In the International markets, the company expects full-year revenue growth to be in the mid-teens, led by the Middle East and Asia, Europe, and Africa.
It expects to deliver more than $4 billion in additional subsea bookings this year, an increase of 25% year-over-year. Meanwhile, in North America, the company expects full-year revenue growth in the mid-single digits. Beyond 2025, SLB foresees record investment levels in the Middle East, as well as heightened offshore activity in Brazil, Guyana, Angola, and Norway.
SLB’s stock has gained 6.4% over the past three months and declined 13.5% over the past six months to close the last trading session at $51.41.
Here’s what you might want to consider ahead of its upcoming earnings release:
Strategic Acquisitions
On April 2, 2024, SLB announced a definitive agreement to acquire Champion X in an all-stock transaction. The acquisition strengthens SLB’s position as a leader in the production space, with world-class production chemicals and artificial lift technologies. It will also help expand its presence in the less cyclical and growing production and recovery space, which aligns well with its returns-focused, capital-light strategy.
On March 27, 2024, SLB announced its agreement to combine its carbon capture business with Aker Carbon Capture (ACC) to support industrial decarbonization at scale. SLB CEO Olivier Le Peuch said, “For CCUS (carbon capture, utilization, and sequestration) to have the expected impact on supporting global net-zero ambitions, it will need to scale up 100-200 times in less than three decades.”
“Crucial to this scale-up is the ability to lower capture costs, which often represent as much as 50-70% of the total spend of a CCUS project. We are excited to create this business with ACC to accelerate the deployment of carbon capture technologies that will shift the economics of carbon capture across high-emitting industrial sectors,” he added.
Mixed Financials
SLB’s revenue for the fourth quarter ended December 31, 2023, increased 14.1% year-over-year to $8.99 billion. Its adjusted EBITDA rose 18.5% over the prior-year quarter to $2.28 billion. The company’s net income attributable to SLB increased 4.5% year-over-year to $1.11 billion. Also, its EPS came in at $0.77, representing an increase of 4% year-over-year.
On the other hand, its income before taxes margin came in at 15.9%, compared to 17.1% in the prior-year quarter.
For the fiscal year ended December 31, 2023, SLB’s revenue increased 18% year-over-year to $33.14 billion. Its adjusted EBITDA rose 25.5% year-over-year to $8.11 billion. The company’s net income attributable to SLB increased 22.1% over the prior-year period to $4.20 billion. Also, its EPS came in at $2.91, representing an increase of 21.8% year-over-year. In addition, its cash flow from operations rose 78.4% year-over-year to $6.64 billion.
On the other hand, its long-term debt increased 2.3% year-over-year to $10.84 billion.
Favorable Analyst Estimates
Analysts expect SLB’s fiscal 2024 EPS and revenue to increase 18.5% and 12.7% year-over-year to $3.53 and $37.33 billion, respectively. Its fiscal 2025 EPS and revenue are expected to increase 18.5% and 11.3% year-over-year to $4.19 and $41.54 billion, respectively.
Similarly, analysts expect SLB’s EPS and revenue for the quarter ending June 30, 2024, to increase 17.5% and 12.8% year-over-year to $0.85 and $9.13 billion, respectively.
Mixed Profitability
SLB’s 16.56% trailing-12-month EBIT margin is 26.5% lower than the 22.52% industry average. Its 19.81% trailing-12-month gross profit margin is 57.3% lower than the 46.37% industry average. Additionally, its 7.38% trailing-12-month CAPEX / Sales is 49.6% lower than the 14.65% industry average.
On the other hand, SLB’s 8.38% trailing-12-month levered FCF margin is 32.4% higher than the 6.33% industry average. Furthermore, the stock’s 22.19% trailing-12-month Return on Common Equity is 24.7% higher than the industry average of 17.80%. Also, its 0.73x trailing-12-month asset turnover ratio is 40.3% higher than the industry average of 0.52x.
Stretched Valuation
In terms of forward non-GAAP P/E, SLB’s 14.55x is 30.7% higher than the 11.13x industry average. Its 2.24x forward EV/Sales is 10.7% higher than the 2.02x industry average. Likewise, its 9x forward EV/EBITDA is 56.6% higher than the 5.75x industry average.
POWR Ratings Reflect Uncertainty
SLB has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SLB has a D grade for Value, consistent with its stretched valuation. Its 1.62 beta justifies its C grade for Stability.
It has a C grade for Quality, which is in sync with its mixed profitability.
SLB is ranked #17 out of 49 stocks in the Energy - Services industry. Click here to access SLB’s Growth, Momentum, and Sentiment ratings.
Bottom Line
After a solid end to fiscal 2023, SLB expects further growth this year, driven by international investment and offshore growth. The company sees more than two-thirds of total investment taking place in the Middle East, offshore, and gas resources. SLB expects seasonal activity to bounce in the second quarter with further traction in the second half of the year.
The company’s digital solutions are expected to be in demand as the industry goes through digitization. Moreover, its acquisition of ChampionX and investment in Aker Carbon Capture will drive future revenue growth.
Despite the favorable growth trends, the challenges of a slowdown in oil demand due to a sluggish global economy and a further escalation of tensions in the Middle East could hamper new investments and contract wins.
Given its mixed profitability and stability, it could be wise to wait for a better entry point in the stock.
How Does Schlumberger Limited (SLB) Stack Up Against Its Peers?
SLB has an overall POWR Rating of C, equating to a Neutral rating. You may check out these A and B-rated stocks within the Energy - Services industry: Vibra Energia S.A. (PETRY), Trican Well Service Ltd. (TOLWF), and Geospace Technologies Corporation (GEOS). For exploring more Buy-rated Energy - Services stocks, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
SLB shares fell $0.04 (-0.08%) in premarket trading Wednesday. Year-to-date, SLB has declined -1.21%, versus a 6.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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