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Should Investors Buy, Sell, or Hold SLB Stock Before Q4 Earnings?
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Key Takeaways
The Zacks Consensus Estimate for SLB is pegged at 90 cents per share, with an estimated $9.2 billion revenue.
The likelihood the company will beat earnings expectations is considered low, according to Zacks analysis.
SLB stock has lost 18.7% the past year against the industry's average improvement of 4.8%.
SLB (SLB - Free Report) is set to report fourth-quarter 2024 results on Jan. 17, 2025, before the opening bell.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 90 cents per share, implying growth of almost 5% from the year-ago reported number. Two analysts revised the estimate downward in the past seven days against no upward movements. The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $9.2 billion, indicating a 2.1% uptick from the year-ago actuals.
Image Source: Zacks Investment Research
SLB beat the consensus estimate for earnings in each of the trailing four quarters, with the average surprise being 1.8%. This is depicted in the graph below:
Q4 Earnings Whispers for SLB
Our proven model does not conclusively predict an earnings beat for SLB this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. That is not the case here.
The company has an Earnings ESP of -1.39%. This is because the Most Accurate Estimate currently stands at 89 cents per share, lower than the Zacks Consensus Estimate of 90 cents. SLB currently carries a Zacks Rank #5 (Strong Sell).
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors to Note
According to the U.S. Energy Information Administration, the average spot prices for West Texas Intermediate crude at Cushing, OK, were $71.99 per barrel in October, $69.95 per barrel in November and $70.12 per barrel in December. This indicates that the crude pricing environment in the fourth quarter was favorable for exploration and production activities. Despite this advantageous pricing, drilling activities declined in domestic and international markets.
Baker Hughes Company (BKR - Free Report) stated in its quarterly rig report that the number of rigs operating in the international market – from where SLB generates the majority of its revenues – during the December quarter was 926, down from 937 in the third quarter and 965 in the year-ago quarter. The report also stated that in North America, the number of operational rigs in the fourth quarter was 782, down from 796 in the previous quarter and 803 in the December quarter of 2023.
Image Source: Baker Hughes Company
The decrease in drilling activities in international and North American markets suggests that explorers and producers likely spent less on upstream activities. Lower customer spending is expected to have affected the demand for services provided by the leading oilfield service provider SLB. The Zacks Consensus Estimate for the company’s operating earnings before tax from the Well Construction business is pegged at $683.5 million, lower than $770 million in the year-ago quarter. Notably, the Well Construction business unit, which focuses on maximizing drilling efficiency and optimizing well placement and performance, is the major earnings contributor among all the business segments.
SLB’s Price Performance & Valuation
SLB's stock has moved downward in the past year. The stock has lost 18.7% against the industry’s improvement of 4.8% in the same time frame. Halliburton Company (HAL - Free Report) , another leading player in the oilfield service space, slipped 17.6% over the same time frame.
One-Year Price Performance
Image Source: Zacks Investment Research
Despite the recent price decline, SLB still appears relatively overvalued, indicating the potential for further price decreases. The company's current trailing 12-month Enterprise Value/Earnings Before Interest, Tax, Depreciation and Amortization (EV/EBITDA) ratio is 7.44, which is trading at a premium compared to the broader industry average of 6.89.
Image Source: Zacks Investment Research
Investment Thesis of SLB
The underperformance of the stock compared with the industry is a clear reflection of the company-specific risk. Huge dependence on the international market is posing a significant threat to the company’s operations. This is because exposures in the Middle Eastern markets introduce significant geopolitical and operational risks to its operations.
A slowdown in drilling activity, as upstream companies focus more on delivering stockholder returns rather than expanding production, is reducing demand for SLB’s services. Additionally, SLB’s future growth heavily depends on its customers’ capital expenditures, which tend to decline during economic downturns, presenting a potential risk to its revenue growth.
Last Word
SLB's overall business is expected to remain bearish due to a moderation in drilling activity among upstream companies globally. This reduction in capital expenditures by SLB's customers has likely dampened demand for its products and services throughout the fourth quarter, with indications that this trend will persist. Consequently, given its current overvaluation, it would be prudent to avoid this stock at the moment.
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Should Investors Buy, Sell, or Hold SLB Stock Before Q4 Earnings?
Key Takeaways
SLB (SLB - Free Report) is set to report fourth-quarter 2024 results on Jan. 17, 2025, before the opening bell.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 90 cents per share, implying growth of almost 5% from the year-ago reported number. Two analysts revised the estimate downward in the past seven days against no upward movements. The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $9.2 billion, indicating a 2.1% uptick from the year-ago actuals.
SLB beat the consensus estimate for earnings in each of the trailing four quarters, with the average surprise being 1.8%. This is depicted in the graph below:
Q4 Earnings Whispers for SLB
Our proven model does not conclusively predict an earnings beat for SLB this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. That is not the case here.
The company has an Earnings ESP of -1.39%. This is because the Most Accurate Estimate currently stands at 89 cents per share, lower than the Zacks Consensus Estimate of 90 cents. SLB currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank stocks here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors to Note
According to the U.S. Energy Information Administration, the average spot prices for West Texas Intermediate crude at Cushing, OK, were $71.99 per barrel in October, $69.95 per barrel in November and $70.12 per barrel in December. This indicates that the crude pricing environment in the fourth quarter was favorable for exploration and production activities. Despite this advantageous pricing, drilling activities declined in domestic and international markets.
Baker Hughes Company (BKR - Free Report) stated in its quarterly rig report that the number of rigs operating in the international market – from where SLB generates the majority of its revenues – during the December quarter was 926, down from 937 in the third quarter and 965 in the year-ago quarter. The report also stated that in North America, the number of operational rigs in the fourth quarter was 782, down from 796 in the previous quarter and 803 in the December quarter of 2023.
The decrease in drilling activities in international and North American markets suggests that explorers and producers likely spent less on upstream activities. Lower customer spending is expected to have affected the demand for services provided by the leading oilfield service provider SLB. The Zacks Consensus Estimate for the company’s operating earnings before tax from the Well Construction business is pegged at $683.5 million, lower than $770 million in the year-ago quarter. Notably, the Well Construction business unit, which focuses on maximizing drilling efficiency and optimizing well placement and performance, is the major earnings contributor among all the business segments.
SLB’s Price Performance & Valuation
SLB's stock has moved downward in the past year. The stock has lost 18.7% against the industry’s improvement of 4.8% in the same time frame. Halliburton Company (HAL - Free Report) , another leading player in the oilfield service space, slipped 17.6% over the same time frame.
One-Year Price Performance
Despite the recent price decline, SLB still appears relatively overvalued, indicating the potential for further price decreases. The company's current trailing 12-month Enterprise Value/Earnings Before Interest, Tax, Depreciation and Amortization (EV/EBITDA) ratio is 7.44, which is trading at a premium compared to the broader industry average of 6.89.
Investment Thesis of SLB
The underperformance of the stock compared with the industry is a clear reflection of the company-specific risk. Huge dependence on the international market is posing a significant threat to the company’s operations. This is because exposures in the Middle Eastern markets introduce significant geopolitical and operational risks to its operations.
A slowdown in drilling activity, as upstream companies focus more on delivering stockholder returns rather than expanding production, is reducing demand for SLB’s services. Additionally, SLB’s future growth heavily depends on its customers’ capital expenditures, which tend to decline during economic downturns, presenting a potential risk to its revenue growth.
Last Word
SLB's overall business is expected to remain bearish due to a moderation in drilling activity among upstream companies globally. This reduction in capital expenditures by SLB's customers has likely dampened demand for its products and services throughout the fourth quarter, with indications that this trend will persist. Consequently, given its current overvaluation, it would be prudent to avoid this stock at the moment.