We reaffirmed our Neutral recommendation on leading oilfield
), on Aug 7, 2013. The company sailed past estimates in the
second quarter aided by international exposure, its focus on
execution and integration capabilities. The company holds a Zacks
Rank #2, which is equivalent to a short-term Buy rating.
We believe Schlumberger's combination of a strong balance sheet,
technological leadership and efficient management will be
beneficial in the long term. We also believe that the company is
favorably positioned to benefit from current trends in oilfield
services, given improving activity levels and greater need for
stimulation and completion of services in North America. Although
operating margin slipped for the region during the second quarter
on a year-over-year basis, the pace of deterioration is expected
to slow down in the upcoming quarters led by seasonally strong
multi-client sales. While hydraulic fracturing pricing and land
drilling activity remain depressed throughout North America, this
was more than offset by strength in the Gulf of Mexico (GoM).
In the international arena, the company experienced a strong
second quarter and we expect activity levels to increase and
enjoy healthy growth throughout 2013. Schlumberger expects its
international spending on exploration and production to climb 10%
this year. The company is aiming for continued margin improvement
underpinned by the Middle East/Asia and Europe/CIS/ Africa
regions. Russia and Australia, in particular, are expected to be
sources of strength in the coming quarters.
Schlumberger's overall outlook for 2013 remains largely unchanged
from its earlier projections. The company remains unperturbed
despite the main economies including China, the U.S. and the Euro
zone witnessing mixed fortunes in the second quarter. As a
result, both oil and gas prices also are following a sideways
trend in pricing, reflecting the mixed nature of the global
Looking forward, Schlumberger's optimism on rising rig count and
customer activity will likely lead to its increased international
spending on exploration, higher production and stepped up
activity in the U.S. GoM. The company also expects steady growth
in key regions that include Sub-Sahara Africa, Russia, the Middle
East, China and Australia.
Schlumberger generates about two-thirds of its revenues
internationally, marking the highest ratio among the biggest
oilfield service providers, which include
Baker Hughes Inc.
). Schlumberger's strength also lies in effective implementation,
strong contracts and new technologies.
The oilfield services behemoth believes that strong leverage to
the deepwater segment will help it to perform well over the
coming years. While the company makes most of its money outside
North America, it bears the brunt of industry-wide weakness in
U.S. hydraulic fracturing services as well as softness in the
land coiled-tubing business.
Other Stocks to Consider
There are other stocks in the sector that appear more rewarding.
Pembina Pipeline Corporation
), which is expected to perform impressively over the next few
months and carries a Zacks Rank #1 (Strong Buy).
BAKER-HUGHES (BHI): Free Stock Analysis
HALLIBURTON CO (HAL): Free Stock Analysis
PEMBINA PIPELN (PBA): Free Stock Analysis
SCHLUMBERGER LT (SLB): Free Stock Analysis
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