On Monday, JPMorgan (NYSE:JPM) adjusted its price target for Schlumberger Limited (NYSE: NYSE:SLB) shares, a leading oilfield services company, reducing it to $64 from the previous $65, while maintaining an Overweight rating on the stock.
The revision followed Schlumberger's first-quarter 2024 results, which aligned with consensus forecasts, but the company's shares fell by 2.1%, underperforming compared to its peers in the Oil Services Index (OSX) and Large Cap Oilfield Services (OFS) by 287 basis points (bps) and 332 bps, respectively.
The downgrade in price target was attributed to a slight miss in EBITDA margin, which came in at 23.6% against JPMorgan's estimate of 23.7%. This was partly due to weaker than expected margins in the Drilling & Measurements (D&I) and Well Construction segments.
Specifically, the D&I margins did not meet the firm's 29.1% estimate, falling short by 244bps and declining by 299bps year-over-year (YoY). Management pointed to increased amortization expenses for Asset Performance Solutions (APS) and lower Canadian gas prices as factors contributing to the margin shortfall.
Despite the margin miss, Schlumberger reported that its Digital segment revenue grew by double digits YoY and is projected to continue growing at a high double-digit rate YoY.
The company also anticipates full-year margins to surpass 30%. Schlumberger's updated outlook for 2024 was closely watched due to softening activity in North America (NAM) linked to weak natural gas prices and Saudi Aramco (TADAWUL:2222)'s recent decision to suspend approximately 20 jackup contracts for the rest of the year.
Nonetheless, Schlumberger reaffirmed its global revenue outlook for 2024, expecting international market strength to balance the softness in NAM. In Saudi Arabia, the suspension of 20 to 22 shallow water jackup contracts by Aramco—primarily due to reduced capital expenditure in the Safaniya and Manifa fields—was noted. Although the rig count in these fields may drop by 10 to 12 rigs, this is likely to be countered by an equal increase in onshore gas rig activity.
Looking ahead to 2025, Schlumberger anticipates a demand for 35-40 onshore gas rigs, which will include approximately 10 to 15 unconventional gas rigs, in addition to conventional gas, intervention, and workover rigs. The company expects that the shift in activity from offshore to onshore will not significantly impact growth in Saudi or the broader Middle East region.
InvestingPro Insights
As Schlumberger Limited (NYSE: SLB) navigates the fluctuating landscape of the oilfield services industry, key financial metrics and expert analysis from InvestingPro offer a deeper dive into the company's performance and outlook. Schlumberger's market capitalization stands at a robust $71.25 billion, reflecting its significant presence in the sector. Despite the recent price target adjustment by JPMorgan, Schlumberger's revenue growth over the last twelve months as of Q1 2024 has been impressive at 14.2%, signaling strong operational execution amidst challenging market conditions.
A closer look at the company's price-to-earnings (P/E) ratio reveals a figure of 16.62, which is slightly adjusted to 16.25 when considering the last twelve months as of Q1 2024. This indicates that the stock is trading at a premium relative to its near-term earnings growth, an InvestingPro Tip that suggests investors weigh the company's earnings potential against its current valuation. Additionally, Schlumberger's dividend yield of 2.21% coupled with a history of maintaining dividend payments for 54 consecutive years underscores its commitment to shareholder returns, a factor that may appeal to income-focused investors.
For those considering an investment in Schlumberger, it's worth noting that the company operates with a moderate level of debt and analysts predict profitability for the year. With these insights and more available on InvestingPro, investors can access a wealth of data and analysis to inform their decisions. To explore further, consider using the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the 6 additional InvestingPro Tips that delve into Schlumberger's financial health and market position.
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