Schlumberger (SLB) To Report Q3 Earnings: What's In Store?

Oilfield service behemoth Schlumberger Limited (NYSE:SLB) is scheduled to report third-quarter 2017 earnings on Oct 20, before the opening bell.

Last quarter, the company delivered a positive earnings surprise of 16.67%, courtesy of a rebound in drilling activities in Russia and the North Sea. Moreover, Schlumberger delivered an average positive earnings surprise of 7.58% over the last four quarters. Let’s see how things are shaping up prior to the announcement.

Which Way Are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of analyst opinion on the stock before the earnings release.

The Zacks Consensus Estimate of 42 cents for the third quarter has been stable in the last 60 days with three firms being bearish sentiments and seven firms being bullish. The estimate reflects a year-over-year improvement of about 67.1%.

Further, analysts polled by Zacks expect revenues of $7,910 million for the third quarter, up 12.7% from the year-ago quarter.

Factors to Consider

Schlumberger is the largest oilfield services player in the world with access to every energy market. In all its operating business segments, the company maintains its position as one of the key players.

For the Drilling Group segment, The Zacks Consensus Estimate for pretax operating profit is $314 million, significantly higher than $218 million reported in the third quarter of last year.

Moreover, the Zacks Consensus Estimate for the Production Group business unit is pegged at $345 million, way higher than $98 million last year.

However, the Zacks Consensus Estimate for pretax operating income at the Reservoir Characterization segment is $294 million, lower than $322 million reported in the year-ago quarter.

Overall, higher crude price during the third quarter is expected to support oilfield players, involved in the setting up of oil wells.

As per macrotrends, The West Texas Intermediate (WTI) crude saw a 12.2% gain in the third quarter of 2017 after two consecutive quarters of decline this year. Notably, this is the highest quarterly gain since the April-to-June quarter of 2016. Also, according to The U.S. Energy Information Administration (EIA), the average monthly price for the three months of third-quarter 2017 was higher than the year-ago period.

Nevertheless, we are concerned about the decline in cash balance over the last six quarters. Also, long-term debt has been on the rise in the same time frame, reflecting a weak balance sheet.

Price Performance in Q3

During the quarter, Schlumberger rallied 5.9%, outperforming the industry’s 3.8% gain.

Earnings Whispers

Our proven model does not conclusively show that Schlumberger is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is -0.98% as the Most Accurate estimate is pegged at 41 cents, while the Zacks Consensus Estimate is 42 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Schlumberger carries a Zacks Rank #3. We caution investors against the stock going into the earnings announcement, as a Zacks Earnings ESP of -0.98% combined with a Zacks Rank #3, lowers the possibility of an earnings surprise.

Stocks to Consider

Although earnings beat looks uncertain for Schlumberger, here are some firms that you may want to consider on the basis of our model, as they have the right combination of elements to post an earnings beat this quarter:

Northern Oil and Gas, Inc (NYSE:NOG) , headquartered in Wayzata, MN, is an exploration and production company. The company has an Earnings ESP of +33.33% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tesoro Corporation (NYSE:ANDV) , based in San Antonio, TX, is involved in the refining and marketing of petroleum products. The company has an Earnings ESP of +10.44% and a Zacks Rank #1.

Gulfport Energy Corporation (NASDAQ:GPOR) owns and operates mature oil and gas properties in the Louisiana Gulf Coast area. The company has an Earnings ESP of +6.08% and a Zacks Rank #1.

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