Despite Lackluster Guidance, Analysts Still Bullish On Schlumberger

Schlumberger Limited SLB shares continued to climb after Friday’s third-quarter bottom-line beat despite fourth-quarter commentary from the company that analysts found “not inspiring.”

Even with the lackluster guidance, sell-side analysts said the stock is still a buy, and the oil services company is on its way to improved margins.

The Analysts

Morgan Stanley’s Connor Lynagh reiterated an Overweight rating and $50 price target on the stock.

Bank of America analyst Chase Mulvehill kept a Buy rating and $43 price target on the stock.

Wells Fargo’s Christopher Voie kept an Outperform rating on the stock but lowered the price target on the stock from $44 to $40.

The Theses

While Schlumberger’s outlook was cautious on North American weakness, management continues to work to improve returns, said Lynagh, adding that 2020 free cash flow should 0be “substantially improved” versus 2019 on lower spending and improved margins. Or, as Mulvehill put it, “the foundation is being laid for structural margin repair.”

Mulvehill did reduce the fourth quarter and 2020 EBITDA estimates by about 1%, noting the company’s fourth-quarter commentary on both North American and international performance was “not very inspiring.” Still, the stock remains a favorite for Bank of America, Mulvehill said in a note.

Voie, who lowered the price target on the stock, along with reduced EBITDA forecasts of about 5% for the fourth quarter, 2020 and 2021, still also said Schlumberger shares remain attractive, and acknowledged a possible 25% upside to the firm’s target price

Risks for the company include the possibility of lower oil prices, political risk in certain international markets and exposure to the slowdown in deepwater oil drilling, Wells Fargo noted.

Price Action

Schlumberger shares were up 3.5% Monday to $33.55.

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