Schlumberger Still 'Best-In-Class' At Credit Suisse

In a report published Monday, Credit Suisse analyst James Wicklund maintained an Outperform rating and $86 price target on

. The analyst believes that the company is still "Best-in-Class." "SLB is one of the two companies best able to not only weather the cyclical storm but also to change how the industry works and benefit from those changes," Wicklund explained. The analyst believes that the Gulf of Mexico offers a much better market than does onshore U.S., although some degree of margin decline is expected in the Gulf of Mexico too, driven by a higher workover and completions mix in a "flat activity" market. This is likely to adversely impact NAM margins. According to the Credit Suisse report, "Price concessions have been given across the board, though almost all involved some alteration of the work itself that saved money for the customers rather than flat price reductions." The analyst expects the impact of price concessions to be visible in the Q2 margins. The Middle East appears to be the best international market, while Mexico and Brazil have been worse than expected, "with Brazil's corruption scandal slowing all activity and non-uniform capex reductions in Mexico hitting some projects harder in which SLB is involved," Wicklund stated. In addition, there has been a significant slowdown in West Africa, along with layoffs in the North Sea, especially Norway. Annual comps are expected to also be challenged with the lack of Arctic drilling in Russia during 2015, due to sanctions. "Our Q2 estimate moves to $0.78 from $0.87, primarily as a result of weaker than expected US offshore and to a less extent, the increased weakness in two select LAM countries," Wicklund added. The 2015 and 2016 earnings estimates have also been lowered from $3.90 and $3.88 to $3.50 and $3.51, respectively.