Schlumberger Sinks 9% On Dismal 3Q Revenue

Schlumberger shares tanked 8.8% on Oct. 16 as the company’s third-quarter revenue missed analysts’ estimates. The oil-field services company posted revenue of $5.26 billion, which declined 38% Y/Y and missed analysts’ forecast of $5.40 billion.

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The decline in oil prices and demand due to the pandemic have been impacting Schlumberger (SLB) and its peers significantly. The company’s 3Q adjusted EPS of $0.16 came ahead of analysts’ estimate of $0.13 but was down 63% Y/Y. North America business fell 59% while the international revenue was down 27%.

In the wake of the current crisis, Schlumberger is undergoing a transition. It is divesting certain businesses as it intends to rationalize its portfolio with a focus on reduced earnings volatility and less capital-intensive businesses.

Last month, the company announced the sale of its North American shale fracking business to smaller rival Liberty Oilfield Services. It is also targeting $1.5 billion of structural cost cuts on an annual basis under its cost reduction program.

Speaking about the 4Q outlook, CEO Olivier Le Peuch commented, “In North America, the conditions are set for continued momentum, with improving DUC [drilled but uncompleted] well completion activity in US land and a modest drilling resumption in the US and Canada.”

“International activity is steady following the budget resets completed in the third quarter and activity will be affected by the seasonal decline in the Northern Hemisphere, partly offset by muted year-end product and multiclient license sales.”

Following the results, Northland Securities analyst Douglas Becker reiterated a Buy rating for Schlumberger with a price target of $24 as he believes that management commentary indicates a modest upside to the 4Q consensus EBITDA estimate of $996 million.

The analyst stated “SLB beat consensus EBITDA by 4% and effectively called a trough in international activity over the next two quarters. Commentary supports modest upside to consensus EBITDA estimates.” (See SLB stock analysis on TipRanks)

With Schlumberger shares plunging about 63% so far in 2020, the average analyst price target of $23.33 implies upside potential of 56% over the coming months. A Moderate Buy consensus for the stock is based on 11 Buys versus 4 Holds and no Sells.