Schlumberger Gains Momentum on Strong Q4 Earnings: Time to Buy the Stock?
Oilfield service giant Schlumberger Limited’s (SLB) earnings and revenue topped Wall Street estimates in the fourth quarter. Its earnings beat analyst estimates by 4.9%, while its revenue came 1.1% higher than the consensus estimate.
SLB’s CEO Olivier Le Peuch said, “We delivered strong fourth-quarter results and concluded a remarkable year for SLB with great success. Revenue grew across all Divisions and geopolitical areas, with robust year-end sales in digital and particularly strong service activity offshore and in the Middle East, where we witnessed a significant inflection as capacity expansion projects mobilized.”
The stock is trading above its 100-day and 200-day moving averages of $53.28 and $44.06, respectively, indicating an uptrend. The company is optimistic about its prospects in 2023. It reported a rise in activity driven by double-digit revenue growth sequentially in the Middle East. SLB’s U.S. land rig count remains robust in North America despite witnessing a moderating pace of growth.
Le Peuch said, “These activity dynamics, improved pricing, and our commercial success- particularly in the Middle East, offshore, and North American markets- combine to set a very strong foundation for outperformance in 2023. Looking ahead, we believe the macro backdrop and market fundamentals that underpin a strong multi-year upcycle for energy remain very compelling in oil and gas.”
The stock has gained 42.5% in price over the past six months and 33.2% over the past year to close the last trading session at $52.29.
Here’s what could influence SLB’s performance in the upcoming months:
Robust Financials
SLB’s revenue increased 27% year-over-year to $7.88 billion for the fourth quarter ended December 31, 2022. Its adjusted EBITDA rose 39% from the prior-year period to $1.92 billion. The company’s net income attributable to SLB increased 77.2% year-over-year to $1.07 billion. In addition, its EPS came in at $0.74, representing an increase of 76.2% year-over-year.
Favorable Analyst Estimates
Analysts expect SLB’s EPS and revenue for fiscal 2023 are expected to increase 38.8% and 16.2% year-over-year to $3.02 and $32.64 billion, respectively. Its EPS and revenue for fiscal 2024 are expected to increase 24.6% and 12% year-over-year to $3.77 and $36.56 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters.
Stretched Valuation
In terms of forward EV/Sales, SLB’s 2.59x is 44.7% higher than the 1.79x industry average. Likewise, its 2.27x forward P/S is 72.9% higher than the 1.32x industry average. Also, its forward P/B of 3.59x is 101.5% higher than the 1.78x industry average. Likewise, its 14.52x forward EV/EBIT is 89.7% higher than the 7.66x industry average.
Mixed Profitability
In terms of the trailing-12-month EBIT margin, SLB’s 14.78% is 25% lower than the 19.71% industry average. Its 7.85% trailing-12-month Capex/Sales is 27.1% lower than the 10.77% industry average.
On the other hand, its 7.98% trailing-12-month Return on Total Assets is 13.7% higher than the industry average of 7.01%. In addition, its 0.66x trailing-12-month asset turnover ratio is 3.4% higher than the industry average of 0.64x.
POWR Ratings Reflect Uncertainty
SLB has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SLB has a D grade for Value, in sync with its stretched valuation.
It has a C grade for Stability, consistent with its 1.81 beta.
SLB is ranked #19 out of 43 stocks in the B-rated Energy - Services industry. Click here to access SLB’s Growth, Momentum, Sentiment, and Quality ratings.
Bottom Line
After topping the earnings and revenue estimates in the fourth quarter, SLB’s stock is trading above its 100-day and 200-day moving averages. The company expects a strong 2023 driven by high demand amid tight supplies. China’s economic recovery is also expected to aid the company’s growth.
However, the fears of a global economic slowdown might impact the demand for fuel. Despite its robust financials and favorable analyst estimates, SLB is trading at an expensive valuation. Thus, it could be wise to wait for a better entry point in the stock.
How Does Schlumberger Limited (SLB) Stack up Against Its Peers?
SLB has an overall POWR Rating of C, equating to a Neutral rating. Therefore, you might want to consider investing in other Energy - Services stocks with an A (Strong Buy) or B (Buy) rating, such as North American Construction Group Ltd. (NOA), NOW Inc. (DNOW), and MRC Global Inc. (MRC).
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SLB shares were trading at $53.77 per share on Friday morning, up $1.48 (+2.83%). Year-to-date, SLB has gained 0.58%, versus a 8.32% rise in the benchmark S&P 500 index during the same period.