We reaffirmed our Neutral recommendation on Schlumberger Limited ( SLB) on Aug 7, 2013. The company remains well positioned to benefit from the recent strength in oilfield services thanks to improving activity levels. However, the activity weakness in North America remains a concern.
Schlumberger– a leading oilfield services company – is favorably positioned to benefit from current trends in oilfield services, given improving activity levels and greater need for stimulation and completion of services in North America.
Although operating margin slipped for the region during the second quarter on a year-over-year basis, the pace of deterioration is expected to slow down in the upcoming quarters led by seasonally strong multi-client sales. While hydraulic fracturing pricing and land drilling activity remain depressed throughout North America, this was more than offset by strength in the Gulf of Mexico.
In the international arena, the company experienced a strong quarter and we expect activity levels to increase and enjoy 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 underpinned by 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.
However, activity weakness in North America, where Schlumberger has a vast exposure, is likely to depress its share prices, going forward. Importantly, pricing remained weak during the recently concluded second quarter. Hydraulic fracturing-related work continued to face difficulty due to overcapacity and will likely continue to decline this year. Moreover, Schlumberger's financial and operational performances face a number of headwinds.
Other Stocks to Consider
While we prefer to remain on the sidelines for Schlumberger, Zacks Ranked #1 (Strong Buy) stock – Range Resources Corp. ( RRC), Susser Petroleum Partners LP ( SUSP) and Dril-Quip, Inc. ( DRQ) – could be good buying options for the short term.
More From Zacks.com