Limited Upside In Schlumberger Stock?
With Saudi-UAE agreeing on easing of production cuts in the coming months, benchmark oil prices have trended downward. Notably, upstream oil & gas companies in the U.S. have rejoiced high benchmark prices as production curtailments remained limited to OPEC+ nations. However, oil field service firms including Schlumberger (NYSE: SLB) are likely to observe a slow top line recovery due to an uncertain demand-supply environment. As upstream companies remain committed to cash preservation and capex curtailment measures, rig count figures are expected to remain subdued in the near-term. Moreover, the company has suspended dividends and share repurchases which limits economic returns to investors apart from capital gains. We highlight Schlumberger’s quarterly revenue and earnings trends along with the expectations for Q2 2021 in an interactive dashboard analysis, Schlumberger’s Earnings Preview.
How did Schlumberger perform in the past quarter?
In Q1, Schlumberger observed a 6% (y-o-y) revenue contraction as the worldwide rig count figures remained 40% lower than last year. The company’s Digital, Reservoir Performance, and Production Systems segments reported revenue declines of 7%, 20%, and 4%, respectively. However, the company reported a net income of just $299 million and operating cash flow of $429 million. Given the 63% revenue contribution by Reservoir Performance and Well Construction segments, the rising supply by OPEC is likely to push rig count numbers in the long-term.
How has SLB stock fared in comparison to the S&P 500?
SLB stock declined from levels of around $34 in February 2020 (pre-crisis peak) to levels of around $13 in March 2020 (as the markets bottomed out), implying SLB stock lost 60% from its approximate pre-crisis peak. With the easing of restriction measures, the stock has almost doubled to $27 and we believe that it has reached its near-term potential. In comparison, the S&P 500 Index first fell 34% as Covid-19 cases accelerated outside China and gained 69% after the Fed’s intervention coupled with ongoing vaccinations.
Do Schlumberger’s peers offer better gains? Schlumberger Stock Comparison With Peers summarizes how SLB compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.
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