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Schlumberger (SLB) Up 8% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Schlumberger (SLB). Shares have added about 8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Schlumberger due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Schlumberger Q4 Earnings & Revenues Beat Estimates

Schlumberger announced fourth-quarter 2020 earnings of 22 cents per share (excluding charges and credits), surpassing the Zacks Consensus Estimate of 18 cents. However, the bottom line declined from 39 cents a year ago.

The oilfield service giant recorded total revenues of $5,532 million, which beat the Zacks Consensus Estimate of $5,231 million but declined 33% from the year-ago quarter’s $8,228 million.

The better-than-expected results can be attributed to contributions from digital solutions and multiclient seismic license sales. This was offset partially by lower evaluation work and stimulation in Qatar and Saudi Arabia.

Segmental Performance

Revenues in all four reporting segments of Schlumberger declined in the fourth quarter. Notably, despite lower revenues, Digital & Integration is the only unit that witnessed higher year-over-year income, thanks to contributions from digital solutions and multiclient seismic license sales.

The company’s businesses related to Reservoir Performance were affected by lower evaluation work and stimulation in Qatar and Saudi Arabia. An increase in North American OneStim activity along with higher intervention activities from start-up developments in Ecuador and Colombia negated the improvement partially.

Seasonality in Russia hurt the company’s Well Construction unit in the fourth quarter. This was offset partially by increased activities related to drilling, fluids and measurement in Latin America, North America, Asia and the Middle East. Moreover, higher sales associated to subsea and surface production systems across all operating regions aided the Production Systems unit.

Revenues at the Digital & Integration unit totaled $833 million, down 25% from the year-ago period. However, pre-tax operating income of $270 million was up 4% year over year.

Revenues at the Reservoir Performance unit declined 41% year over year to $1,247 million. Moreover, pre-tax operating income was $95 million, down 58% year over year.

Revenues at the Well Construction segment declined 38% from the year-earlier quarter to $1,866 million. Also, pre-tax operating income fell 51% year over year to $183 million.

Revenues at the Production Systems segment amounted to $1,649 million, down 23% from the year-ago period. Moreover, pre-tax operating income declined 24% from the prior-year quarter to $155 million.

Cash Flow

Despite the company’s $144 million of severance payments through the December quarter, the oilfield service firm was able to generate free cash flow of $554 million.

Financials

Capital expenditures in the quarter were recorded at $258 million. As of Dec 31, 2020, the company had approximately $3,006 million in cash and short-term investments plus $16,036 million of long-term debt. This represented a debt-to-capitalization ratio of 57.5%.

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Schlumberger projects 2021 capital investment at $1.5 to $1.7 billion, in comparison to last year’s $1.5 billion.

The company believes that there has been an increase in optimism for fuel demand recovery in 2021, thanks to the rise in oil price owing to the rolling out of coronavirus vaccines and economic stimulus measures. Schlumberger added that it will take no later than 2023 for crude demand to rebound back to the pre-pandemic levels of 2019. This in turn will boost oilfield services and activities in North America and international markets.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 6.76% due to these changes.

VGM Scores

At this time, Schlumberger has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Schlumberger has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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