Down 6% This Year, Will SLB Stock Recover Following Q2 Results?

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 second-quarter results on Friday, July 19. We expect SLB’s stock to likely trade higher with revenues and earnings coming slightly ahead of market expectations in Q2. SLB’s international and offshore markets continue to experience a strong resurgence of activity driven by resilient long-cycle development and capacity expansion projects. The supply cuts from Saudi Arabia and Russia, and persistent demand in Europe, have helped to build a more supportive environment for oil prices currently. However, the outlook for SLB’s largest source of revenue – Middle East- remains uncertain due to high geopolitical tensions and restraints by OPEC that will impact some project development. And, any signs of a potential economic slowdown in the U.S. could further lead to questions about demand in the short run. SLB’s stock is down 6% year-to-date. In comparison, SLB’s peer Halliburton stock (NYSE: HAL) is almost flat this year.

For Q2, SLB expects a seasonal rebound in the Northern Hemisphere and robust activity internationally and anticipates sequential growth internationally in the mid-single-digits and North America in the low single-digits. 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. 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 $49 now, vs. an increase of about 50% 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?

Our forecast indicates that SLB’s valuation is $53 per share, which is 11% higher than the current market price. Look at our interactive dashboard analysis on SLB Earnings Preview: What To Expect in Fiscal Q2? for more details.

(1) Revenues expected to beat consensus estimates marginally

Trefis estimates SLB’s Q2 2024 revenues to be around $9.2 billion, slightly ahead of the consensus estimate. The company’s top line grew 13% y-o-y to $8.7 billion, as International revenue jumped 18% y-o-y to about $7.1 billion but North American revenue fell 6% y-o-y to $1.6 billion due to reduced drilling activity in the U.S. It should be noted that about half of SLB’s y-o-y revenue increase stemmed from the Aker subsea business, which was added as part of its OneSubsea joint venture in Q4. By geography, SLB’s International revenue growth of 18%, was led by a 28% growth in the Middle East/Asia, an 18% rise in Europe/Africa, and a 2% growth in Latin America. The company’s North American revenues represent only around 20% of the total revenue – so the rest of the world’s revenues are critical. By segment, Well Construction revenues rose 3% y-o-y to $3.4 billion, Production Systems revenues gained 28% y-o-y to $2.8 billion, and Reservoir Performance revenues jumped 15% y-o-y to $1.7 Billion. The basic principle is that the company generates revenues by increasing drilling contracts and services. For full-year FY 2024, we forecast SLB’s Revenues to be $37.3 billion, up 13% y-o-y.

SLB acquired Houston-based ChampionX Corp in an all-stock deal valued at $7.8 billion in April 2024. This acquisition could likely enhance areas that both companies fall behind in, such as ChampionX’s robust production chemicals segment and SLB’s artificial lift segment. Since this acquisition, SLB announced that it will be increasing shareholder returns from $2.5 billion to $3 billion in 2024 and $4 billion in 2025. The company repurchased 5.4 million shares in the first quarter for $270 million, leaving significant room for investors to take advantage of these additional shareholder benefits in fiscal 2024.

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

SLB’s Q2 2024 earnings per share (EPS) is expected to come in at 85 cents per Trefis analysis, marginally beating the consensus estimate. SLB Q1 2024 net income rose to $1.07 billion, or $0.74 per share, from $934 million, or $0.65 per share, in the year-earlier quarter, driven by sustained growth in the international markets.

(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 14.5x in fiscal 2024, this translates into a price of $53, which is almost 11% 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.

[1] Returns as of 7/17/2024
[2] Cumulative total returns since the end of 2016

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