Back to top

Analyst Blog

On Jan 31, we reaffirmed our Neutral recommendation on the leading oilfield services company Schlumberger Limited (SLB - Analyst Report), following its fourth quarter results. The company’s strong performances in the Gulf of Mexico (GoM) region, its international reach and diverse product offerings were offset by weak performance in Europe/CIS/Africa and Middle East & Asia.

Why the Reiteration?

The company reported its fourth quarter financial results on Jan 18. Adjusted earnings of $1.08 per share came in line with our expectation but decreased 1.8% from the year-earlier quarter.

Although hydraulic fracturing pricing and land drilling activity remain depressed throughout North America, outperformance in the GoM helped the offshore business. It posted a 24% sequential rise in revenues in the GoM bolstered by rising deepwater rig activity and a seasonal rise in year-end, multi-client seismic sales.

In the international arena, although the company experienced a somewhat choppy fourth quarter due to transitory issues, we expect activity levels to increase and enjoy healthy growth throughout 2013. International pricing continued to improve last quarter attributable to new technology sales and small-to-mid sized contract bidding.

Schlumberger expects its international spending on exploration and production to climb 10% this year. The company aims for continued margin improvement internationally with Russia and Australia being the major sources of strength in the coming quarters.

The company’s exposure to growing deepwater activity through its core services and seismic capabilities also positions it well to continue generating industry-leading international margins. Schlumberger generates about two-thirds of its revenue internationally, marking the highest ratio among the biggest oilfield service providers, which include Halliburton Co. (HAL - Analyst Report) and Baker Hughes Inc. (BHI - Analyst Report).

Despite this, our primary concern remains the fact that the company’s North American land continued to weaken in the U.S. and Canada. Its near-term outlook on U.S. land also remains subdued with lingering weakness in pressure pumping.

We see no earnings momentum for the stock over the last 7 days for the first quarter of 2013 as well as full-year 2013. The Zacks Consensus Estimates for the first quarter and full-year 2013 are currently pegged at $1.01 and $4.76 per share, reflecting a year-over-year increase of 3.4% and 14.1%, respectively.

Other Stock to Consider

Currently, shares of the world’s largest oilfield services provider, Schlumberger, retain a Zacks Rank #3 (Hold).

However, there are certain other oilfield service providers like Hornbeck Offshore Services Inc (HOS - Snapshot Report) that offer value and are worth buying now. The company sports a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.55 +11.64%
CHINA BIOLO… CBPO 55.57 +7.40%
BITAUTO HOL… BITA 96.14 +5.58%
LUXOFT HOLD… LXFT 38.77 +3.64%
INSITE VISI… INSV 0.30 +3.41%