Schlumberger’s stock (NYSE: SLB), which provides oil field services including drilling, completion, and production solutions to upstream oil & gas companies in the U.S. and abroad, is scheduled to report its fiscal second-quarter results on Friday, July 22. We expect SLB’s stock to trade lower due to revenues and earnings missing expectations marginally in its second quarter. Q2 saw the company’s stock price fall by over 15% (over the quarter) on the back of declining benchmark crude oil prices as the Biden Administration tries to bring costs down and concerns grew over interest rate hikes, a potential recession, and fear of another lockdown in Shanghai. Although it should be noted that the current oil pricing environment could have only partially worked its way into Schlumberger’s earnings, given the long planning horizons and contract-driven nature of the services industry.
Our forecast indicates that Schlumberger’s valuation is $32 per share, which is 6.5% lower than the current market price. Look at our interactive dashboard analysis on Schlumberger’s Earnings Preview: What To Expect in Fiscal Q2? for more details.
(1) Revenues expected to be slightly below consensus estimates
Trefis estimates SLB’s Q2 2022 revenues to be around $6.17 Bil, marginally below the consensus estimate. In Q1, the company’s revenues rose 14% year-over-year (y-o-y) to $5.9 billion (but declined 4% sequentially), with the company’s well construction segment, its most significant unit revenue, posting the best growth, up 24% y-o-y to $2.4 billion. To break revenues down according to geography, SLB’s Q1 international revenues grew 10% y-o-y to $4.6 billion, while North American sales surged 32% to $1.3 billion. In the upcoming quarter, we expect the company’s revenues to see a similar momentum in revenues, driven by improved drilling activity and pricing power globally. For 2022, we forecast Schlumberger’s Revenues to be $24.6 billion, up 7.4% y-o-y.
The rig count figures in the U.S. were almost 22% lower than pre-pandemic levels (as of the last week of June). This shortage of rigs is expected as the oil industry was brutally over-downsized for several years before the present energy supply crunch. Consequently, we expect that Schlumberger’s revenues in 2022 will still remain below the 2019 pre-pandemic levels.
2) EPS is also likely to miss consensus estimates
SLB’s Q2 2022 earnings per share (EPS) is expected to come in at 37 cents per Trefis analysis, 2 cents below the consensus estimate. In Q1, the company’s net income rose to $510 million, or $0.36 per share, from $299 million, or $0.21 per share, in the year-earlier quarter, but also fell from $601 million in Q4 2021. In addition, its operating cash flow did decline year-over-year, dropping from $429 million to $131 million in Q1, but if we adjust for changes in working capital, it would have risen from $886 million to $1.13 billion.
(3) Stock price estimate lower than the current market price
Going by our Schlumberger’s Valuation, with an EPS estimate of around $1.73 and a P/E multiple of 18.6x in fiscal 2022, this translates into a price of $32, which is almost 6.5% lower than the current market price.
It is helpful to see how its peers stack up. SLB Peers shows how Schlumberger’s stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||5%||-17%||77%|
|Trefis Multi-Strategy Portfolio||10%||-15%||236%|
 Month-to-date and year-to-date as of 7/21/2022
 Cumulative total returns since the end of 2016