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Factors to Know Ahead of Schlumberger's (SLB) Q3 Earnings

Zacks Equity Research

Schlumberger Limited SLB is slated to report third-quarter 2019 earnings on Oct 18, before the opening bell.  

In the last reported quarter, the company’s earnings of 35 cents per share met the Zacks Consensus Estimate, courtesy of contributions from drilling operations in international markets. Higher wireline and testing services in Russia and Central Asia, as well as the United Kingdom and Continental Europe were also driving factors.

As far as earnings surprises are concerned, the Houston, TX-based company is on a firm footing, as it did not miss the Zacks Consensus Estimate in the last four quarters, with the average positive surprise being 0.6%. This is depicted in the graph below:

Schlumberger Limited Price and EPS Surprise

Schlumberger Limited Price and EPS Surprise

Schlumberger Limited price-eps-surprise | Schlumberger Limited Quote

Investors expect this provider of technical products and services to drillers of oil and gas wells to continue winning ways by not missing earnings estimates this time around as well. However, that might not be the case here, as you will see below. Let’s see how things are shaping up prior to the announcement.

Which Way are Estimates Headed?

Let’s look at the estimate revision trend to get a clear picture of what analysts expect from the company prior to the earnings release.

The Zacks Consensus Estimate of 41 cents for third-quarter earnings has been stable over the past 30 days. This indicates a decline of almost 10.9% from the year-ago quarter.

Further, the Zacks Consensus Estimate for revenues of $8.5 billion suggests a 0.2% drop from the prior-year quarter.

Factors to Consider

With U.S. explorers and producers spending conservatively owing to volatile crude prices, Schlumberger is expected to have generated lower revenues from oilfield service operations, since it helps upstream energy players to efficiently set up oil wells. Moreover, pipeline constraints in the prolific Permian Basin and declining well productivity might have hurt crude production volumes. These factors are reflected in the Zacks Consensus Estimate for two of the company’s major business segments.  

The Zacks Consensus Estimate for the Reservoir Characterization segment’s earnings before tax stands at $355 million, indicating a decline from $373 million in the prior-year quarter. Moreover, for the Production unit, the Zacks Consensus Estimate for earnings before tax is pegged at $237 million, suggesting a fall from $320 million in the prior-year quarter.

However, the Zacks Consensus Estimate for the Drilling segment’s earnings before tax stands at $353 million, implying growth from $339 million in the prior-year quarter.

Earnings Whispers

Our proven model does not conclusively predict a beat for Schlumberger this earnings season. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.   

Earnings ESP: Earnings ESP represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Schlumberger has an Earnings ESP of -1.64% as the Most Accurate Estimate stands at 40 cents while the Zacks Consensus Estimate is pegged at 41 cents.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Schlumberger currently carries a Zacks Rank #3, which increases the predictive power of ESP. But we need to have a positive Earnings ESP to be confident of a positive surprise.

Meanwhile, we caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

While earnings beat looks uncertain for Schlumberger, here are some companies from the Energy space that you may want to consider on the basis of our model, which shows that these have the right combination of elements to post an earnings beat in the upcoming quarterly reports:

Noble Corporation plc NE is set to report third-quarter 2019 earnings on Oct 30. The stock has an Earnings ESP of +2.19% and is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

Phillips 66 PSX has an Earnings ESP of +6.48% and a Zacks Rank of 3. The company is slated to announce third-quarter 2019 earnings on Oct 25.

Plains All American Pipeline, L.P. PAA has an Earnings ESP of +17.20% and is a #3 Ranked player. The company is scheduled to release third-quarter 2019 earnings on Nov 5.

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