Earnings Preview: Schlumberger Limited (SLB)

Equity markets got off to strong start in 2013 after Congress managed to sign off on a last minute fiscal cliff deal cobbled together by Republican leader Mitch McConnell and Vice President Joe Biden. Euphoria quickly faded, however, with investors shifting their focus back to Washington as Congress begins new rounds of negotiations concerning the debt ceiling and several spending cut deadlines. Understandably, the rather uncertain economic environment has left many wary about the fourth quarter’s earnings season, though analysts predict that the lowered expectations found among investors leaves room for companies to post positive surprises, even if results do not meet last year’s double-digit figures.

Already, aluminum giant Alcoa (AA) has reported that revenue was well above expectations, and the company predicts aluminum demand growth to rise in 2013–a crucial and positive indicator for the global economy. With earnings season well underway, the spotlight shifts to oil and gas giant Schlumberger Limited (SLB), whose 2012 year-end results are slated to be reported this Friday [for more commodity news and analysis subscribe to our free newsletter].

Schlumberger (SLB): Lowered EPS Projections, But Still a Favored BuyOil Pump

In recent months, analysts have become more wary of this leading oil and gas equipment and services provider, with EPS projections down 1.8% year-over-year. Currently, 2012 Q4 earnings estimates are coming in around $1.09 per share, compared to a $1.16 EPS estimate about three months ago. Schlumberger’s revenue is expected to have fallen 1.1% (YoY) to $10.85 billion for the quarter.

Last year, a weak domestic drilling landscape weighed heavily on most U.S.-based oilfield services firms. But in a savvy move, Schlumberger manged to avoid the brunt of this downturn by leveraging its strong international presence. As a result, the company has seen net income rise for the past three consecutive quarters, leading many analysts to rate the stock as a buy in 2013 [see also How To Profit From Record U.S. Oil Production].

As this new year continues, holders and potential buyers of SLB should keep an eye out for several factors many analysts believe may affect the oil drilling industry in 2013 including:

  • Weaker land drilling demand in the United States and Canada will likely continue this year, putting downward pressure on margins.
  • Domestic offshore drilling activity, particularly in the Gulf of Mexico, is forecasted to remain strong as the number of rigs working offshore continues to grow.
  • International opportunities in the unconventional oil space will likely be a good source for potential profit, as markets like China, Australia and the United Kingdom have faced less opposition to this controversial industry than the United States. [see The Definitive Guide to Fracking].

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Disclosure: No positions at time of writing.

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