On Jan 31, we reaffirmed our Neutral recommendation on the
leading oilfield services company
), following its fourth quarter results. The company's strong
performances in the Gulf of Mexico (GoM) region, its
international reach and diverse product offerings were offset by
weak performance in Europe/CIS/Africa and Middle East & Asia.
Why the Reiteration?
The company reported its fourth quarter financial results on Jan
18. Adjusted earnings of $1.08 per share came in line with our
expectation but decreased 1.8% from the year-earlier quarter.
Although hydraulic fracturing pricing and land drilling
activity remain depressed throughout North America,
outperformance in the GoM helped the offshore business. It posted
a 24% sequential rise in revenues in the GoM bolstered by rising
deepwater rig activity and a seasonal rise in year-end,
multi-client seismic sales.
In the international arena, although the company experienced a
somewhat choppy fourth quarter due to transitory issues, we
expect activity levels to increase and enjoy healthy growth
throughout 2013. International pricing continued to improve last
quarter attributable to new technology sales and small-to-mid
sized contract bidding.
Schlumberger expects its international spending on exploration
and production to climb 10% this year. The company aims for
continued margin improvement internationally with Russia and
Australia being the major sources of strength in the coming
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The company's exposure to growing deepwater activity through its
core services and seismic capabilities also positions it well to
continue generating industry-leading international margins.
Schlumberger generates about two-thirds of its revenue
internationally, marking the highest ratio among the biggest
oilfield service providers, which include
Baker Hughes Inc.
Despite this, our primary concern remains the fact that the
company's North American land continued to weaken in the U.S. and
Canada. Its near-term outlook on U.S. land also remains subdued
with lingering weakness in pressure pumping.
We see no earnings momentum for the stock over the last 7 days
for the first quarter of 2013 as well as full-year 2013. The
Zacks Consensus Estimates for the first quarter and full-year
2013 are currently pegged at $1.01 and $4.76 per share,
reflecting a year-over-year increase of 3.4% and 14.1%,
Other Stock to Consider
Currently, shares of the world's largest oilfield services
provider, Schlumberger, retain a Zacks Rank #3 (Hold).
However, there are certain other oilfield service providers like
Hornbeck Offshore Services Inc
) that offer value and are worth buying now. The company sports a
Zacks Rank #2 (Buy).