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Why Is Schlumberger (SLB) Up 8.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Schlumberger (SLB). Shares have added about 8.7% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Schlumberger Posts In-Line Earnings in Q4, Decline Y/Y

Schlumberger Limited’s fourth-quarter 2018 earnings of 36 cents per share (excluding charges and credits) were in line with the Zacks Consensus Estimate. The bottom line, however, declined from 48 cents a year ago.

The oilfield service giant logged total revenues of $8,180 million, flat year over year. The top line, however, beat the Zacks Consensus Estimate of $8,062 million.

The improvement in drilling business on higher mobilized rigs for integrated projects, rise in sales of SIS software in international markets and increased activities associated with Testing Services in Oman, United Arab Emirates and Qatar aided the company’s fourth-quarter results. The positives were partially offset by the fall in OneStim revenues from the North American land market.

Segmental Performance

Reservoir Characterization and Drilling units registered a year-over-year increase in revenues while the Production segment reported a decline.

Increased sales of SIS software in India, Russia, Vietnam and China aided the Reservoir Characterization segment. Improved activities related to Testing Services in Oman, United Arab Emirates and Qatar also led to the improvement. However, lower Wireline activity in Russia partially offset the unit’s results.

Mobilization of higher drilling rigs for several integrated drilling developments in Argentina, China, India and Norway backed the Drilling segment. Lower activities in Northern Hemisphere have offset the results partially. 

Decline in OneStim revenues from the land market of North American hurt the Production segment. The waning in revenues related to well services in the Argentina also led to the deterioration.  

Revenues at the Reservoir Characterization unit totaled $1,651 million, marginally higher than $1,640 million a year ago. Pre-tax operating income increased nominally to $364 million from $359 million in fourth-quarter 2017.

Revenues at the Drilling unit summed $2,461 million, up 13% year over year. Pre-tax operating income was $318 million, flat year over year.

Revenues at the Production segment declined 5% from the year-earlier quarter to $2,936 million. Moreover, pre-tax operating income fell 37% year over year to $198 million.  

Revenues at the Cameron segment amounted to $1,265 million, down 11% year over year. Pre-tax operating income dropped 37% from the prior-year quarter’s $127 million.

Financials

As of Dec 31, 2018, the company had approximately $2,777 million in cash and short-term investments plus $14,644 million in long-term debt. This represents a debt-to-capitalization ratio of 30.5%. Through the October-to-December quarter, 2.1 million stocks were repurchased by the oilfield services player.

Outlook

Schlumberger believes oil prices will recover gradually through 2019. However, the volatility in the commodity price has convinced explorers and producers to spend conservatively, added the company. In other words, a customer’s emphasis on free cash flow rather than capital spending owing to oil price volatility has made the outlook for onshore North American drilling and production businesses uncertain, said Schlumberger.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.86% due to these changes.

VGM Scores

Currently, Schlumberger has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Schlumberger has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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