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Schlumberger to Focus on International Market, Debt a Drag
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On Jun 27, we issued an updated research report on oilfield services player Schlumberger Limited (SLB - Free Report) . The company’s greater reliance on higher profitable international market is a major positive. However, we are concerned about Schlumberger’s escalating debt load for the last two years.
Schlumberger currently carries a Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Houston, TX-based company is the largest oilfield services player in the world with presence in every energy market across the globe. In all the operating business segments, the company is among the top players. Given the huge size and attractive reservoir and well technologies, the firm will likely outperform peers.
The company expects increased activities in the international markets in late 2017 and in 2018. In other words, although operations outside the U.S. have hit fresh lows in the first quarter but in the long run, Schlumberger is expected to gain from its international operations. Given that demand for better technologies and advanced oilfield service solutions for solving complex projects have increased in the international market, we believe Schlumberger is better placed than its peers.
Moreover, the Schlumberger-Cameron merger is likely to create technology-driven growth by integrating Schlumberger’s reservoir and well technologies with Cameron wellhead and surface equipment, flow control and processing technology.
However, Schlumberger has lesser exposure to the U.S. shale plays where drillers have been gathering actively – total number of rigs in the U.S. has increased for the 23rd consecutive week as per the latest rig count report by Baker Hughes Inc. . This is reflected by the fact that during 2016, 2015 and 2014, the oilfield services player generated 80%, 76% and 71% of its consolidated revenues from non-U.S. operations. Thus, Schlumberger is losing out on the opportunity to gain profitable contracts from shale drillers of late.
Additionally, the company has to comply with the stringent U.S. laws to ensure that its activities do not pollute the environment. For compliance, Schlumberger has to incur significant expenses that might dent earnings and also reduce shareholders’ returns. Also, compared to 2012, the company’s debt load has increased significantly. Importantly, since the beginning of 2015, long-term debt load has been rising at a sharp rate.
On top of that, the last one-year pricing chart shows that Schlumberger has underperformed the Zacks categorized Oil & Gas-Field Services industry. During the aforesaid period, shares of the company lost over 16%, compared with the 15.9% decline of the industry.
We expect year-over-year earnings growth of almost 725% in 2017 for Canadian Natural.
W&T Offshore had an average positive earnings surprise of 69.21% for the last four quarters.
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Schlumberger to Focus on International Market, Debt a Drag
On Jun 27, we issued an updated research report on oilfield services player Schlumberger Limited (SLB - Free Report) . The company’s greater reliance on higher profitable international market is a major positive. However, we are concerned about Schlumberger’s escalating debt load for the last two years.
Schlumberger currently carries a Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Houston, TX-based company is the largest oilfield services player in the world with presence in every energy market across the globe. In all the operating business segments, the company is among the top players. Given the huge size and attractive reservoir and well technologies, the firm will likely outperform peers.
The company expects increased activities in the international markets in late 2017 and in 2018. In other words, although operations outside the U.S. have hit fresh lows in the first quarter but in the long run, Schlumberger is expected to gain from its international operations. Given that demand for better technologies and advanced oilfield service solutions for solving complex projects have increased in the international market, we believe Schlumberger is better placed than its peers.
Moreover, the Schlumberger-Cameron merger is likely to create technology-driven growth by integrating Schlumberger’s reservoir and well technologies with Cameron wellhead and surface equipment, flow control and processing technology.
However, Schlumberger has lesser exposure to the U.S. shale plays where drillers have been gathering actively – total number of rigs in the U.S. has increased for the 23rd consecutive week as per the latest rig count report by Baker Hughes Inc. . This is reflected by the fact that during 2016, 2015 and 2014, the oilfield services player generated 80%, 76% and 71% of its consolidated revenues from non-U.S. operations. Thus, Schlumberger is losing out on the opportunity to gain profitable contracts from shale drillers of late.
Additionally, the company has to comply with the stringent U.S. laws to ensure that its activities do not pollute the environment. For compliance, Schlumberger has to incur significant expenses that might dent earnings and also reduce shareholders’ returns. Also, compared to 2012, the company’s debt load has increased significantly. Importantly, since the beginning of 2015, long-term debt load has been rising at a sharp rate.
On top of that, the last one-year pricing chart shows that Schlumberger has underperformed the Zacks categorized Oil & Gas-Field Services industry. During the aforesaid period, shares of the company lost over 16%, compared with the 15.9% decline of the industry.
Stocks to Consider
Better-ranked players in the energy sector include Canadian Natural Resources Limited (CNQ - Free Report) , and W&T Offshore Inc. (WTI - Free Report) . Canadian Natural sports a Zacks Rank #1 (Strong Buy), while W&T Offshore carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
We expect year-over-year earnings growth of almost 725% in 2017 for Canadian Natural.
W&T Offshore had an average positive earnings surprise of 69.21% for the last four quarters.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation. See Them Free>>