We maintained our Neutral recommendation on
) on Jan 27, 2014. Schlumberger carries a Zacks Rank #3 (Hold).
We expect Schlumberger's combination of a strong balance sheet,
technological leadership and efficient management to prove
beneficial in the long term. We also believe that the company is
favorably positioned to benefit from the current trends in
oilfield services, given improving activity levels and the
greater need for stimulation and completion of services in North
Schlumberger's overall outlook for 2014 remains largely bullish
on an improved global economic scenario. The company remains
unperturbed despite some of the major emerging economies
witnessing mixed fortunes in 2013. Demand for oil in 2014 is
expected to remain strong while international natural gas prices
Looking ahead, 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. Gulf of Mexico. Schlumberger generates about
two-thirds of its revenues internationally, marking the highest
ratio among the biggest oilfield service providers. Its strength
also lies in effective implementation, strong contracts and new
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In the international arena, the company experienced a strong
quarter and we expect activity levels to increase and enjoy
healthy growth throughout 2014. Schlumberger expects its
international spending on exploration and production to climb
over 6% in 2014. The company is aiming for continued margin
improvement underpinned by the Middle East/Asia and
Europe/CIS/Africa regions. Russia, Middle East, Sub-Saharan
Africa, China and Australia, in particular, are expected to be
sources of strength in the coming quarters.
However, management expects first half of 2014 to be challenging
in Mexico and Brazil as additional equipment mobilization to
Mexico is expected to take place in the latter half of 2014. In
addition, the likely slowdown in Mexico later this year on
reduced Chicontepec activity, flat activity in Southern Iraq in
the first half of 2014 as well as weaker pricing from key
contract rollovers and re-negotiations are expected to have a
negative influence on the company's performance.
Stocks That Warrant a Look
While we expect Range Resources to perform in line with its
peers, one can consider Zacks Ranked #1 (Strong Buy) stocks
NGL Energy Partners LP
Cheniere Energy Partners L.P.
Northern Tier Energy LP
) as good buying opportunities for the short term.