Schlumberger Limited SLB is well poised to grow on the back of attractive reservoir and well technologies. However, conservative spending by explorers and producers, and lower domestic rig count are causes of concern.
Houston, TX-based Schlumberger is a leading oilfield services company that provides services to oil and gas explorers, and producers across the world. Schlumberger helps upstream energy players to locate oil and gas, as well as drill and evaluate hydrocarbon wells. It also supports the explorers to produce optimum volumes of the commodities from the existing wells.
The Zacks Consensus Estimate for the company’s bottom line for 2019 has been revised downward to $1.50 from $1.54 in the past 60 days. Notably, four analysts have revised their estimates higher, while nine analysts have made downward revisions during this time period.
Schlumberger Limited Price and Consensus
Schlumberger Limited price-consensus-chart | Schlumberger Limited Quote
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Favoring the Stock?
Schlumberger is the largest oilfield services player, with presence in every energy market across the world. Also, in all the operating business segments, the company is among the top players. Given Schlumberger’s huge size and attractive reservoir and well technologies, the company will likely outperform its peers.
Notably, the company’s greater reliance on lucrative international market is appreciable. Being the leading provider of technology for complex oilfield projects, Schlumberger is better positioned than most of its peers to take up new offshore projects in the shallow water basins outside North America.
The company is expecting to see an improvement in international markets wherein drilling rig count and final investment decision (FID) for clients’ projects are on the rise. The tailwinds are supporting Schlumberger’s projection of 7-8% increase in spending by upstream energy firms in international markets through 2019. Thus, Schlumberger’s oilfield services are likely to record higher demand in international markets served.
The firm has a strong commitment of returning cash to its shareholders through dividend payments and stock repurchases. Over the past five years, Schlumberger’s dividend yield has been mostly higher than the collective yield of the stocks belonging to the industry. Markedly, through the June quarter, 2.5 million stocks were repurchased by the oilfield services player.
There are a few factors that are impeding the growth of the stock lately.
Schlumberger stated that explorers and producers are constrained by the reduction in capacity for borrowings and an increase in the cost of capital. Also, the explorers are facing constant pressure from investors for higher returns instead of production growth. These headwinds are likely to lower investments by explorers and producers in the land market of North America by 10% through 2019.
Moreover, decline in rig count in the domestic market can affect Schlumberger’s business. Also, conservative spending by explorers and producers is going to hurt demand for the company’s oilfield services in North America. Thus, Schlumberger has set its 2019 capital budget in the range of $1.5-$1.7 billion, indicating a decrease from last year’s $2.2 billion.
The pipeline bottleneck problem in the Permian Basin has been hurting the company’s operations in U.S. shale plays. Worryingly enough, Schlumberger expects pipeline transportation capacity constraints to last well into 2019. The oilfield service player’s overall business is also getting affected by soft hydraulic fracturing prices in the United States.
To Sum Up
Despite the company’s significant prospects, conservative spending by explorers and producers, as well as lower domestic rig count are concerns. Nevertheless, we believe that systematic and strategic plan of action will drive its long-term growth.
Stocks to Consider
Some better-ranked players in the energy space are National Oilwell Varco, Inc. NOV, Dril-Quip, Inc. DRQ and NuStar Energy L.P. NS. All these firms have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
National Oilwell’s 2019 earnings per share are expected to rise 137.5% year over year.
Dril-Quip’s 2019 earnings per share are expected to rise 131.8% year over year.
NuStar Energy’s third-quarter 2019 earnings per share are expected to gain more than 108% year over year.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>
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
NuStar Energy L.P. (NS) : Free Stock Analysis Report
National Oilwell Varco, Inc. (NOV) : Free Stock Analysis Report
Dril-Quip, Inc. (DRQ) : Free Stock Analysis Report
Schlumberger Limited (SLB) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research