We have reaffirmed our Neutral recommendation on Schlumberger Limited (SLB), a leading oilfield services company, on May 7, 2013. Robust performance in the international arena drove margin improvement. However, activity weakness in North America hurt earnings. The company holds a Zacks Rank #3, which is equivalent to a short-term Hold rating.
Schlumberger's combination of a strong balance sheet, technological leadership and efficient management will be beneficial in the long term. We believe that the company is favorably positioned to benefit from the current trends in oilfield services, given its improving activity levels and greater need for stimulation and completion of services in North America.
In the international arena, the company experienced a strong quarter and we expect activity levels to enjoy healthy growth throughout 2013. Schlumberger expects its international spending on exploration and production to climb 10% this year. The company is aiming for continued margin improvement primarily in the Middle East/Asia and Europe/CIS/ Africa regions. Russia and Australia, in particular, are expected to be sources of strength in the coming quarters.
Moreover, production management activity in Ecuador, strength in the Mexico & Central America and growth in the Argentina, Bolivia & Chile GeoMarkets boosted profits in Latin America. North American profits were driven by solid activity in Canada and strong results from the U.S. Gulf of Mexico.
However, activity weakness in North America, where Schlumberger has a vast exposure, is likely to depress its share prices, going forward. Importantly, the continued weakness in pricing during the quarter and hydraulic fracturing-related work still face difficulty from overcapacity and will likely continue to decline this year.
Other Stocks to Consider
While we prefer to remain on the sidelines forPioneer, there are other stocks in the sector that appear more rewarding for the next few months. These include theZacks Rank #1 (Strong Buy) stocks of Dawson Geophysical Company (DWSN), InterOil Corporation (IOC) andExterran Holdings, Inc. (EXH).
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