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Schlumberger Q4 Earnings Preview: Is This Oilfield Services Company Priced to Perfection?
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Schlumberger (SLB - Free Report) is the largest oilfield services company in the world, active in 120 countries and all major energy geographies.
SLB is an energy technology company and operates through four separate divisions: Well construction, Digital, Reservoir Performance, and Production Systems. Schlumberger touches many aspects of the most technically intensive activities in the energy extraction process including software and data management, coiled tubing equipment for downhole mechanical well intervention, reservoir management, and well stimulation among an array of other services.
The recent strength in oil prices along with Schlumberger’s broad technical expertise has encouraged a recent boon to the business.
SLB is also very committed to ESG policy and moving their business towards net-zero emissions. They are the first energy services company to add scope 3 emissions ambition, which is the highest standard of reduction by the EPA. This along with its diversified offerings, SLB likely has a long runway to future business expansion.
In the near term, however, there may be some risks. Many upstream energy companies have cut capital spending to avoid overextending themselves financially and have instead prioritized returning capital to shareholders. A lack of heavy investment may weigh on Schlumberger’s earnings going forward.
Schlumberger reports earnings on Friday January 20 before the market open
Earnings Expectations
Schlumberger has strong sales and earnings growth expectations. Q4 sales estimates are expected to grow 26% to $7.7 billion, while FY 2022 sales are expected to climb 22% to $28 billion.
Earnings growth for Q4 is expected to surge 68% to $0.69 per share, with FY 2022 earnings projected to also grow 68% to $2.15 per share.
SLB also has a very consistent record with regards to earnings. SLB almost always reports in line with expectations or beats and going back to 2012 there is only one instance of missing, and it was just $-0.01.
A more recent development is earnings volatility. You can see in the chart below that in the last two reporting sessions, SLB made some big moves following the report. Following the Q2 report the stock rallied 7.5% and after Q3 it was up 14.5%. These moves higher followed fairly significant beats as well.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Valuation
Schlumberger shares are up 74% over the last six months and 140% over the last two years outpacing the sector during both time periods. The post Covid economy has been very good for SLB.
Performance has been so good it looks to me like Schlumberger stock may be fully priced, and the upside may be limited from here.
Current valuations are in line with its historical averages. Relative to the sector it is well above its 10-year median. And the current one year forward P/E is just below its 10-year median. Additionally, SLB currently has a Zacks Rank #3 (Hold) indicating a lack of positive earnings growth trend.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Conclusion
Schlumberger is a very well-positioned business with great long-term prospects. It has made exceptional returns over the past two years. Additionally, this success has put Schlumberger in a position to share some of its profits through increased dividends. The company has committed to splitting FCF to distribute as a dividend, which is now a 1.2% yield.
This earnings report should be a very interesting tell for Schlumberger and the Energy services sector.
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Schlumberger Q4 Earnings Preview: Is This Oilfield Services Company Priced to Perfection?
Schlumberger (SLB - Free Report) is the largest oilfield services company in the world, active in 120 countries and all major energy geographies.
SLB is an energy technology company and operates through four separate divisions: Well construction, Digital, Reservoir Performance, and Production Systems. Schlumberger touches many aspects of the most technically intensive activities in the energy extraction process including software and data management, coiled tubing equipment for downhole mechanical well intervention, reservoir management, and well stimulation among an array of other services.
The recent strength in oil prices along with Schlumberger’s broad technical expertise has encouraged a recent boon to the business.
SLB is also very committed to ESG policy and moving their business towards net-zero emissions. They are the first energy services company to add scope 3 emissions ambition, which is the highest standard of reduction by the EPA. This along with its diversified offerings, SLB likely has a long runway to future business expansion.
In the near term, however, there may be some risks. Many upstream energy companies have cut capital spending to avoid overextending themselves financially and have instead prioritized returning capital to shareholders. A lack of heavy investment may weigh on Schlumberger’s earnings going forward.
Schlumberger reports earnings on Friday January 20 before the market open
Earnings Expectations
Schlumberger has strong sales and earnings growth expectations. Q4 sales estimates are expected to grow 26% to $7.7 billion, while FY 2022 sales are expected to climb 22% to $28 billion.
Earnings growth for Q4 is expected to surge 68% to $0.69 per share, with FY 2022 earnings projected to also grow 68% to $2.15 per share.
SLB also has a very consistent record with regards to earnings. SLB almost always reports in line with expectations or beats and going back to 2012 there is only one instance of missing, and it was just $-0.01.
A more recent development is earnings volatility. You can see in the chart below that in the last two reporting sessions, SLB made some big moves following the report. Following the Q2 report the stock rallied 7.5% and after Q3 it was up 14.5%. These moves higher followed fairly significant beats as well.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Valuation
Schlumberger shares are up 74% over the last six months and 140% over the last two years outpacing the sector during both time periods. The post Covid economy has been very good for SLB.
Performance has been so good it looks to me like Schlumberger stock may be fully priced, and the upside may be limited from here.
Current valuations are in line with its historical averages. Relative to the sector it is well above its 10-year median. And the current one year forward P/E is just below its 10-year median. Additionally, SLB currently has a Zacks Rank #3 (Hold) indicating a lack of positive earnings growth trend.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Conclusion
Schlumberger is a very well-positioned business with great long-term prospects. It has made exceptional returns over the past two years. Additionally, this success has put Schlumberger in a position to share some of its profits through increased dividends. The company has committed to splitting FCF to distribute as a dividend, which is now a 1.2% yield.
This earnings report should be a very interesting tell for Schlumberger and the Energy services sector.