Reports Q3 2021 results on Friday, Oct. 22, before the open
Revenue Expectation: $5.94 billion
EPS Expectation: $0.36
Oilfield giant Schlumberger (NYSE:SLB) is in a sweet spot these days. The stock has soared as demand for the company’s services returned after crude oil’s historic price collapse last year.
Schlumberger Weekly Chart.
In a clear sign that the worst is behind them, investors have sent Houston-based Schlumberger stock surging about 30% in the past three months. This rally is backed by powerful demand for energy products after the pandemic shock that forced Schlumberger to drastically restructure its business.
Schlumberger operates in more than 120 countries, supplying the industry’s most comprehensive range of products and services, from exploration through production. Its quarterly results serve as a bellwether for the energy business given its reach across regions and insight into drillers’ plans.
According to Schlumberger’s latest guidance, the company sees an “exceptional growth cycle” in the next few years. Oil prices rose to above $80 per barrel this month and natural gas to a record high as the energy crisis in Europe and China ripples across the globe, raising the spectre of shortages in several countries.
Another positive for investors is that Schlumberger has much leaner operations after a massive overhaul of its business during the pandemic. In the past two years, it has cut tens of thousands of workers, reshuffled the company’s business around the globe and sold off assets in North America in order to focus on overseas work. The service provider expects to generate about 80% of sales from international markets.
Strong Earnings Growth
In a recent note JPMorgan said that an increase in international production levels should benefit Schlumberger:
“Our upgrade reflects the company’s advantaged portfolio that is poised to deliver strong earnings growth from the global recovery in upstream spending and further margin expansion. Our favorable thesis is predicated on our view that U.S. [exploration and production] capex restraint will lead to less U.S. shale growth, but higher levels of international activity to support the increase in productive capacity.”
Despite this optimism and much improved market conditions, there are still many obstacles that could impede growth for oil services giants. The big question mark is how keen the world’s largest oil producers are to ramp up production. So far, it seems oil companies are answering to investors, who want them to return more cash, abandon projects and pay off debts.
Exxon Mobil Corp.’s (NYSE:XOM) board of directors is debating whether to continue with several major oil and gas projects as the company reconsiders its investment strategy in a fast-changing energy landscape, the Wall Street Journal reported yesterday.
Global supply shortages and inflation can also eat into margins. Baker Hughes (NYSE:BKR) reported this week its oil services unit was hurt by supply-chain snarls and cost inflation in its chemicals business.
Due to its vast international business, Schlumberger is in a good position to reap the benefits of a strong rebound in energy markets. Its share price, however, is already reflecting that optimism and tomorrow’s possible earnings beat may not fuel further gains.