With The Stock Flat This Year, Will Q1 Results Drive SLB Stock Higher?

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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 scheduled to report its fiscal first-quarter results on Friday, April 19. We expect SLB’s stock to likely trade higher with revenues and earnings coming slightly ahead of market expectations in its first quarter. The company’s international and offshore markets continue to experience a strong resurgence of activity driven by resilient long-cycle development and capacity expansion projects. While supply cuts from Saudi Arabia and Russia, and persistent demand in Europe (which is the third largest oil consumer after the U.S. and China), have helped to build a more supportive environment for oil prices currently, any signs of a potential economic slowdown in the U.S. could lead to questions about demand in the short run.

For Q1, SLB anticipates revenue growth in the low teens year-over-year (y-o-y) and EBITDA growth in the mid-teens, followed by a seasonal activity bounce in Q2 and further acceleration of growth in the second half of FY 2024. It expects to see over $100 billion in global offshore final investment decisions in 2024-25, resulting in a very promising subsea outlook. During 2024, the company expects to generate more than $4 billion in new subsea bookings, an increase of more than 25% y-o-y. The company forecasts international revenues will grow at a mid-teens percentage rate in FY 2024, while North American revenues will rise at a mid-single-digit rate. SLB expects no significant impact on activity in 2024 from the Gaza conflict and Houthi rebel attacks on ships in the Red Sea. Beyond 2025, SLB foresees record investment levels in the Middle East, particularly from Saudi Arabia and the United Arab Emirates, as well as continued strong offshore activity in Brazil, Guyana, Angola, and Norway.

SLB stock has seen extremely strong gains of 150% from levels of $20 in early January 2021 to around $52 now, vs. an increase of about 35% 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 -3% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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?

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Our forecast indicates that SLB’s valuation is $58 per share, which is 13% higher than the current market price. Look at our interactive dashboard analysis on SLB Earnings Preview: What To Expect in Fiscal Q1? for more details.

(1) Revenues expected to beat consensus estimates marginally

Trefis estimates SLB’s Q1 2024 revenues to be around $8.8 billion, slightly ahead of the consensus estimate. grew 14% y-o-y to nearly $9 billion in Q4, as International revenue jumped 18% y-o-y to $7.29 billion. The company’s Q4 North American revenue remained flat at $1.6 billion, with reduced drilling activity in the U.S. and the Gulf of Mexico. SLB’s International revenue growth was led by all geographies – the Middle East and Asia (25% increase), Europe &Africa (18% increase) and Latin America (6% increase y-o-y). 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 gained 6% y-o-y to $3.4 billion, Production Systems revenues jumped 33% y-o-y to $2.9 billion, and Reservoir Performance revenues rose 12% y-o-y to $1.7 billion. For full-year FY 2024, we forecast SLB’s Revenues to be $37.3 billion, up 13% y-o-y.

2) EPS is also likely to come in ahead of consensus estimates marginally

SLB’s Q1 2024 earnings per share (EPS) is expected to come in at 77 cents per Trefis analysis, marginally beating the consensus estimate. SLB Q4 2023 net income rose to $1.11 billion, or $0.77/share, from $1.07 billion, or $0.74/share, in the year-earlier quarter.

(3) Stock price estimate higher than the current market price

Going by our SLB’s Valuation, with an EPS estimate of around $3.63 and a P/E multiple of 16.0x in fiscal 2024, this translates into a price of $58, which is almost 13% higher than the current market price.

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 Apr 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 SLB Return -6% -1% -38%
 S&P 500 Return -4% 6% 126%
 Trefis Reinforced Value Portfolio -5% 1% 621%

[1] Returns as of 4/16/2024
[2] Cumulative total returns since the end of 2016

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