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Why Is a Q4 Earnings Beat Less Likely for Schlumberger (SLB)?

Zacks Equity Research

Schlumberger Limited SLB is expected to report fourth-quarter 2018 earnings on Jan 18, before the opening bell.  

Last quarter, the company’s earnings of 46 cents per share beat the Zacks Consensus Estimate by a penny. Also, the company posted an average positive earnings surprise of 3.4% for the last four quarters.

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 earnings release.

The Zacks Consensus Estimate of 37 cents for fourth-quarter earnings has been stable over the last seven days. It reflects a decline of about almost 22.9% from the year-ago quarter.

Further, the Zacks Consensus Estimate for revenues of $8.13 billion reflects a 0.5% drop from the prior-year quarter.

Schlumberger Limited Price and EPS Surprise

 

Schlumberger Limited Price and EPS Surprise | Schlumberger Limited Quote

Factors to Consider

Through fourth-quarter 2018, the West Texas Intermediate (WTI) crude plunged from a multi-year high of $76.40 a barrel in early October to below $45 in late December, per the U.S. Energy Information Administration.  

The overall decline in the commodity price will likely be unfavorable for Schlumberger as oilfield service businesses are positively correlated with crude price. The Houston, TX-based firm expects demand and pricing for North American oilfield services to be weak in the October-to-December quarter, as constraint in pipeline bottleneck problem in the prolific Permian Basin and declining well productivity could hurt crude production volumes. The bearish trend is showing on 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 $372 million, lower than $373 million in the prior-quarter.

Moreover, for the Production unit, the Zacks Consensus Estimate for earnings stands at $237 million, down from $315 million in the prior-year quarter and $320 million in third-quarter 2018.

Earnings Whispers

Our proven model does not conclusively show 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.   

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -2.33%. This is because the Most Accurate Estimate is pegged at 36 cents, while the Zacks Consensus Estimate stands at 37 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Schlumberger carries a Zacks Rank #5 (Strong Sell). We caution investors against stocks with a Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Though an earnings beat looks uncertain for Schlumberger, here are a few energy firms that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat this quarter:

Ensco plc ESV, a leading offshore contract driller, has an Earnings ESP of +2.9% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Southwestern Energy Company SWN, based in Houston, TX, with both upstream and midstream operations, has an Earnings ESP of +24.1% and holds a Zacks Rank #3.

Fort Worth, TX-based Range Resources Corp RRC, an upstream energy firm, has an Earnings ESP of +24.3% and a Zacks Rank #3.

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