Will Schlumberger (SLB) Stock Disappoint on Q2 Earnings?
Schlumberger Limited (SLB) is expected to report second-quarter 2016 earnings on Jul 21.
Last quarter, the company’s earnings of 40 cents per share missed the Zacks Consensus Estimate of 41 cents. The quarter's results also decreased from the year-ago earnings of $1.06 per share. Let’s see how things are shaping up prior to the announcement.
Factors Likely to Affect Earnings
Schlumberger has vast exposure in North America, which is witnessing persistent activity weakness. Although oil prices rose from the mid-February lows, the pricing scenario was weaker than the comparable quarter last year. Also, the weakness in pricing and offshore activity during the quarter is likely to have an unfavorable impact on the company’s earnings. Further, weaker pricing from key contract rollovers and re-negotiations are expected to adversely impact the to-be-reported results.
SCHLUMBERGER LT Price and EPS Surprise
SCHLUMBERGER LT Price and EPS Surprise | SCHLUMBERGER LT Quote
However, Schlumberger's strong balance sheet, technological leadership and efficient management are expected to prove beneficial in the long term. Moreover, the company’s efforts to increase its capacity in pressure pumping and strengthening deepwater activity in the Gulf of Mexico are likely to add to its revenues going forward. While hydraulic fracturing pricing and land drilling activity remained depressed throughout North America, this was more than offset by the company’s superior technology, internal efficiency gains and size.
Overall Schlumberger’s activities during the quarter proved inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate declined to 22 cents from 41 cents per share over the last 90 days.
Earnings Whispers
Our proven model does not conclusively show that Schlumberger is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at -4.55%. The Most Accurate estimate for Schlumberger stands at 21 cents while the Zacks Consensus Estimate is pegged higher at 22 cents.
Zacks Rank: Schlumberger carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies from the energy sector that, according to our model, have the right combination of elements to post an earnings beat this quarter:
Legacy Reserves LP LGCY has an Earnings ESP of +31.58% and a Zacks Rank #1. The partnership is expected to release earnings results on Aug 3.
Ring Energy, Inc. REI has an Earnings ESP of +33.33% and a Zacks Rank #2. The company is anticipated to release earnings results on Aug 8.
Anadarko Petroleum Corporation APC has an Earnings ESP of +13.75% and a Zacks Rank #2. The company is likely to release earnings results on Jul 26.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
SCHLUMBERGER LT (SLB): Free Stock Analysis Report
ANADARKO PETROL (APC): Free Stock Analysis Report
LEGACY RESERVES (LGCY): Free Stock Analysis Report
RING ENERGY INC (REI): Free Stock Analysis Report
To read this article on Zacks.com click here.
