Raymond James: Schlumberger Weathering Weak North American Oil Market

Although Schlumberger Limited SLB reported a decline in Q4 earnings Friday, this was in-line with expectations.

Against the backdrop of a significantly weaker North American market, the company demonstrated capital budget agility and lowered its capex, according to Raymond James. Schlumberger is likely to remain free cash flow positive and support its dividend, the sell-side firm said in a Tuesday note. 

The Analyst

Raymond James analyst Praveen Narra maintains a Market Perform rating on Schlumberger.

The Thesis

While there is a lack of clarity surrounding improvement in the NAM market, the international market is showing signs of growth, Narra said in a note. 

Given the continued volatility in the oil market, U.S. E&Ps have yet to reveal their spending plans for 2019, the analyst said, adding that E&P capex budgets could decline drastically.

The first quarter could bring pricing pressure and activity weakness, and North American pricing could remain weak for the first half of the year, Narra said. 

Raymond James lowered its non-GAAP EPS estimates for 2019 and 2020 from $1.64 to $1.58 and from $3.19 to $3.05, respectively. The firm's GAAP EPS estimates for 2019 and 2020 were reduced from $1.65 to $1.58 and from $3.20 to $3.07, respectively.

Commenting on the international growth outlook, Narra said that Schlumberger has signed several contracts that could result in a marked increase in activity in 2019.

This could be the company's first year of revenue growth since 2014, and growth will likely be driven by the company’s drilling segment, the analyst said. 

The oilfield services provider has indicated an improvement in free cash flow in 2019, according to Raymond James. 

Price Action

Schlumberger shares were down 2.03 percent at $43.82 at the time of publication Tuesday. 

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