Schlumberger Limited (NYSE: SLB) reported first-quarter results April 18 that were in-line with expectations while announcing disappointing second-quarter guidance.
The Street is estimating 2020 EPS of $2.25 with an operating margin expansion of 230bps, which looks aggressive, according to Credit Suisse.
Jacob Lundberg maintained a Neutral rating on Schlumberger and reduced the price target from $44 to $43.
The Street’s operating margin expansion expectation of 230bps for 2020 implies incremental margins of 36 percent, which requires a level of operating leverage that hasn’t been seen since 2014, Lundberg said in a Tuesday note. (See his track record here.)
Even when considering the consensus estimate, the stock “does not look cheap,” the analyst said.
Lundberg forecast a more modest operating margin expansion of130bps for 2020, implying 27-percent incremental margins.
As Schlumberger enters the third year of upstream capex growth, it appears poised to record its third year of flattish margins and returns, the analyst said.
Credit Suisse lowered the EPS estimates for 2019 and 2020 from $1.50 to $1.48 and from $2 to $1.90, respectively.
Schlumberger shares were up 0.13 percent at $45.89 at the close Tuesday.
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