What The Street Thinks Of Schlumberger Now

Last Thursday, Schlumberger Limited. SLB reported stronger-than-expected earnings for the first quarter. In the days that followed, several analysts weighed in on the results.

Related Link: Schlumberger Q1 Profit Tops Views, Shares Gain

This article will look into what Wall Street research firms Morgan Stanley, RBC and BMO think about the earnings:

Morgan Stanley rates Schlumberger with an Overweight and a $110 price target. According to the firm’s report, the company showed confidence that their first quarter’s international resilience will be repeated, “highlighting that it is the third inning of its transformation with much runway ahead.” Schlumberger also showed itself confident on its latest technology, “willing to put up the capital for refracturing work and be paid back in production.”

The analysts at Morgan Stanley highlight that (1) the company’s margin resiliency can be seen as a “true sign of its superior organizational structure;” (2) “Lower capital intensity and surprisingly strong FCF [are] further signs of operational excellence;” (3) a deep pocketed company offers to fund “cash-strapped E&Ps;” (4) the macro outlook remains quite constructive, but the recovery in services is expected to be slow.

RBC Capital Markets analysts give Schlumberger an Outperform rating, accompanied by a $104 price target. According to the research note, the “strong first quarter provided evidence that the company's  relentless  focus  on  execution  is  paying  off  during  the downturn,  and  earnings  are  unlikely  to  fall  as  severely  as  some  were expecting.”

The firm expects, for Schlumberger, margins well above its peer group, and “more performance based contracts [where] reward exceeds risk.” They add that “SLB believes deepwater still represents a huge resources base for the industry, but costs need to be reduced and recovery rates need to increased to make projects more competitive.”

BMO also rate Schlumberger with an Outperform and a $110 price target. The analysts highlight the “biggest company-specific takeaway” for them: “current trough EPS is likely to be 25-30% higher than 2009. This is primarily driven by internal initiatives focused on efficiency that are unlikely to be replicated by peers and should continue to improve given that SLB’s transformation is in just the ‘third inning.’”