Flat Since The Beginning of 2023, What Is Next For SLB Stock?

+12.07%
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Trefis
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SLB
SLB

After an almost flattish growth since the beginning of the year, at the current price of around $53 per share, we believe SLB’s stock (NYSE: SLB), formerly known as Schlumberger, which provides oil field services including drilling, completion, and production solutions to upstream oil & gas companies in the U.S. and abroad – is in fair value range currently, with upside potential in the longer run. SLB stock has remained around $53 year-to-date (YTD), in comparison the S&P index grew 24% during the same period. The company’s revenue growth has been slowing due to headwinds in the E&P sector in general. SLB’s Q1 2023 revenues grew 30% year-over-year (y-o-y), followed by a 20% increase y-o-y in Q2 and an 11% y-o-y rise in the third quarter. It should be noted that SLB’s forward-looking outlook looks positive, with expectations of high single-digit sequential revenue growth and the addition of the Aker Subsea business. Aker is expected to add roughly $400 to $500 million in incremental revenue in the fourth quarter of 2023 with pretax operating margins in the low teens. As such, the activity outlook in the Middle East also looks robust – where SLB cited the continuation of record investment by national oil companies for multiple years.

SLB stock has seen extremely strong gains of 175% from levels of $20 in early January 2021 to around current levels, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. However, the increase in SLB stock has been far from consistent. Returns for the stock were 37% in 2021, 78% in 2022, and -2% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 22% in 2023 (YTD) – indicating that SLB underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Energy sector including XOM, CVX, and COP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could SLB face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

SLB Q3 2023 net income rose to $1.12 billion, or $0.78 per share, from $907 million, or $0.63 per share, in the year-earlier quarter, driven by sustained growth in the international markets, where the company grew 11% y-o-y to $8.31 billion, as International revenue jumped 12% y-o-y to $6.61 billion, and North American revenue rose 6% y-o-y to $1.64 billion, with reduced drilling activity in the U.S. and the Gulf of Mexico. By geography, SLB’s International revenue growth of 5%, led by the Middle East and Asia (8% increase) was partially offset by a 6% decrease in North America. It should be noted that the Middle East/Asia and Europe/Africa regions are critical to the company as North American revenues represent only around 20% of the total revenue. The basic principle here is that the company generates revenues by increasing drilling contracts and services. By segment, Well Construction revenues rose 11% y-o-y to $3.4 billion, Production Systems revenues gained 10% y-o-y to $2.4 billion, and Reservoir Performance revenues jumped 15% y-o-y to $1.7 Billion.

Relevant Articles
  1. Down 7% Already This Year, Will SLB Stock Recoup These Losses After Q4 Results?
  2. SLB’s Q2 Earnings: What Are We Watching?
  3. SLB Stock To Likely Trade Higher Post Q1
  4. SLB Stock Looks Attractive At $46
  5. What To Expect From SLB’s Stock Post Q4 Results?
  6. What To Expect From Schlumberger’s Stock Post Q2?

We forecast SLB’s Revenues to be $32.9 billion for the fiscal year 2023, up 17% y-o-y. Looking at the bottom line, we now forecast EPS to reach 3.00. Given the changes to our revenues and earnings forecast, we have revised our SLB’s Valuation to $55 per share, based on $3.00 expected EPS and an 18.3x P/E multiple for the fiscal year 2023 – almost in line with the current market price. That said, SLB’s leading position, global reach, and strong financials provide a solid prospect for its growth and profitability in the long term.

It is helpful to see how its peers stack up. SLB Peers shows how SLB’s stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 SLB Return 2% -1% -37%
 S&P 500 Return 4% 24% 112%
 Trefis Reinforced Value Portfolio 8% 39% 613%

[1] Month-to-date and year-to-date as of 12/26/2023
[2] Cumulative total returns since the end of 2016

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