Schlumberger (SLB), the world’s largest oilfield services company, will report its first-quarter earnings on April 19. The company is expected to report revenue and earnings growth compared to the prior-year quarter. So is it time to invest in stocks ahead of their earnings? Read on to know my point of view.
Schlumberger Limited (SLB) will report first quarter results on April 19. Wall Street expects the company to post higher revenue and earnings in the first quarter. With SLB earnings expected soon, I discussed why waiting for an appropriate entry point in the stock might 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 billion 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 range and EBITDA growth in the mid range. SLB announced it will return $7 billion to shareholders over the next two years.
SLB intends to increase shareholder returns in 2024 to $3 billion and set a target of $4 billion for 2025. It expects more than $100 billion in global offshore FIDs (final investment decisions) in 2024 and 2025. In international markets, the company expects a full year, revenue growth will be in the mid-teens, led by the Middle East and Asia, Europe and Africa.
It is expected to deliver more than $4 billion in additional subsea bookings this year, up 25% year-over-year. Meanwhile, in North America, the company expects full-year revenue growth in the mid-single digits. Beyond 2025, SLB expects record levels of investment in the Middle East, as well as an intensification of offshore activity in Brazil, Guyana, Angola and Norway.
SLB shares gained 6.4% over the past three months and fell 13.5% over the past six months to close the latest trading session at $51.41.
Here’s what you might consider ahead of its next 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 manufacturing leader, with world-class manufacturing chemicals and artificial lift technologies. It will also help expand its presence in a less cyclical and growth production and recovery space, which aligns well with its capital-light, yield-focused strategy.
On March 27, 2024, SLB announced its agreement to combine its carbon capture business with Aker Carbon Capture (ACC) to support large-scale industrial decarbonization. Olivier Le Peuch, CEO of SLB, said: “For CCUS (carbon capture, use and sequestration) to have the expected impact on supporting global net-zero ambitions, it will need to increase 100-200 times in less than three decades ”.
“Central to this increase is the ability to reduce acquisition costs, which often represent up to 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 in 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 increased 18.5% from 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. Additionally, its EPS came in at $0.77, up 4% year-over-year.
On the other hand, the pre-tax profit margin stood at 15.9%, compared to 17.1% in the year-ago quarter.
For the fiscal year ended December 31, 2023, SLB’s revenue increased 18% year-over-year to $33.14 billion. Its adjusted EBITDA increased 25.5% year over year to $8.11 billion. The company’s net income attributable to SLB increased 22.1% from the same period last year to $4.20 billion. Furthermore, its EPS was $2.91, an increase of 21.8% year-over-year. Additionally, cash flow from operations increased 78.4% year over year to $6.64 billion.
On the other hand, its long-term debt increased 2.3% year-on-year to $10.84 billion.
Favorable analysts’ estimates
Analysts expect SLB’s EPS and revenue for fiscal 2024 to increase 18.5% and 12.7% year-over-year, to $3.53 billion and $37.33 billion, respectively. Fiscal 2025 EPS and revenues are expected to increase 18.5% and 11.3% year over year, to $4.19 billion and $41.54 billion, respectively.
Similarly, analysts expect SLB’s EPS and revenue for the quarter ended June 30, 2024 to increase 17.5% and 12.8% year-over-year, to $0.85 billion and $9.13 billion, respectively dollars.
Mixed profitability
SLB’s trailing 12-month EBIT margin of 16.56% is 26.5% lower than the industry average of 22.52%. Its trailing 12-month gross profit margin of 19.81% is 57.3% lower than the industry average of 46.37%. Furthermore, its trailing 12-month CAPEX/Sales of 7.38% is 49.6% lower than the industry average of 14.65%.
On the other hand, SLB’s trailing 12-month leveraged FCF margin of 8.38% is 32.4% higher than the industry average of 6.33%. Additionally, the trailing 12-month return on equity of 22.19% is 24.7% higher than the industry average of 17.80%. Additionally, its trailing 12-month asset turnover ratio stands at 0.73x and is 40.3% higher than the industry average of 0.52x.
Elongated evaluation
In terms of forward non-GAAP P/E, SLB’s 14.55x is 30.7% higher than the industry average of 11.13x. Its forward EV/sales of 2.24x is 10.7% higher than the industry average of 2.02x. Likewise, its forward EV/EBITDA of 9x is 56.6% higher than the industry average of 5.75x.
POWR ratings reflect uncertainty
SLB has an overall rating of C, equivalent to Neutral in our POWR ratings system. POWR Ratings are calculated by considering 118 different factors, each optimally weighted.
Our proprietary rating system also evaluates each security based on eight distinct categories. SLB has a D grade for Value, consistent with its high rating. Its beta of 1.62 justifies its C grade of stability.
It has a C grade for quality, which is in keeping with its mixed profitability.
SLB is ranked 17th out of 49 stocks in the Energy – Services sector. Click here to access SLB’s growth, momentum and sentiment ratings.
Bottom line
After a strong finish to fiscal 2023, SLB expects further growth this year, driven by international investment and offshore growth. The company sees more than two-thirds of its total investments made in the Middle East, offshore and gas resources. SLB expects seasonal activity to rebound in the second quarter with further momentum in the second half of the year.
The company’s digital solutions are expected to be in high demand as the industry goes through digitalization. Additionally, the acquisition of ChampionX and investment in Aker Carbon Capture will drive future revenue growth.
Despite favorable growth trends, challenges posed by a slowdown in oil demand due to a stagnant global economy and further escalation of tensions in the Middle East could hinder new investments and contract wins.
Given its mix of profitability and stability, it might be wise to wait for a better entry point into the stock.
How does Schlumberger Limited (SLB) Can it hold its own against its peers?
SLB has an overall POWR rating of C, equivalent to a Neutral rating. You can take a look at these A- and B-rated stocks in the energy services sector: Vibra Energia SA (PETRY), Trican Well Service Ltd. (TOLWF), and Geospace Technologies Corporation (GEOS). To explore other Energy – Services stocks with Buy ratings, click here.
What to do next?
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SLB shares fell $0.04 (-0.08%) in pre-market trading on Wednesday. Year to date, SLB is down -1.21%, compared to a 6.27% rise in the benchmark S&P 500 index over the same period.
About the author: Dipanjan Banchur
Ever since he was in primary school, Dipanjan was interested in the stock market. This led him to earn 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.
Moreover…
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