After an 11% decline over the last week, at the current price of around $46 per share, we believe SLB’s stock (NYSE: SLB), formerly known as Schlumberger, which provides oil field services including drilling, completion, and production solutions to upstream oil & gas companies in the U.S. and abroad – could see gains in the longer term. SLB stock has declined from around $52 to $46 in the last five days, as the Brent crude fell to around the level of $73, which was also a 15-month low. This was due to the fallout of the banking sector and the European Central Bank rate hike. Oil is falling as straight-line parallels are drawn to prior bank sector-driven recessions, particularly the 2008 financial crisis. Having said that, the short-term trend for oil will depend upon the level of market angst. But, we believe that the company’s fundamentals remain strong, which will likely pave the way for longer-term gains. As such, the activity outlook in the Middle East looks robust – where SLB cited the continuation of record investment by national oil companies for multiple years.
SLB reported Q4 2022 adjusted earnings and revenues that beat analyst estimates while raising its quarterly dividend to $0.25/share. The company’s Q4 GAAP net income rose to $1.07 billion, or $0.74/share, from $601 million, or $0.42/share, in the prior-year period. Its adjusted EBITDA jumped 39% year-over-year (y-o-y), and revenues rose 27% y-o-y to $7.88 billion, including a 27% y-o-y jump in revenues from the North American segment to $1.63 billion and a 26% gain in international sales to $6.19 billion. It should be noted that the Middle East/Asia and Europe/Africa regions are critical to the company as North American revenues represent only around 21% of the total revenue. The basic principle here is that the company generates revenues by increasing drilling contracts and services.
We forecast SLB’s Revenues to be $32.6 billion for the fiscal year 2023, up 16% y-o-y. Looking at the bottom line, we now forecast EPS to come in at 3.03. Given the changes to our revenues and earnings forecast, we have revised our SLB’s Valuation to $57 per share, based on $3.03 expected EPS and an 18.8x P/E multiple for the fiscal year 2023 – almost 23% higher than the current market price. Going forward, if the present macroeconomic pressures continue to persist, it is likely that the broader markets may see further lower levels in the near term. And, a further dip in SLB stock can be used as a buying opportunity for better gains in the long run. SLB’s leading position, global reach, and strong financials provide a solid prospect for its growth and profitability.
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