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SLB's Legacy Business Is Behind Its Strong Results

By MarketBeat.com (Chris Markoch )Stock MarketsOct 25, 2022 05:12AM ET
www.investing.com/analysis/slbs-legacy-business-is-behind-its-strong-results-200631469
SLB's Legacy Business Is Behind Its Strong Results
By MarketBeat.com (Chris Markoch )   |  Oct 25, 2022 05:12AM ET
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  • SLB stock is soaring after a stellar earnings report
  • Traditional oil and gas business appears to have a long runway
  • Stock trading at its 52-week high; but may be overbought

Shares of Schlumberger (NYSE:SLB) are up over 10% after the company posted a beat on both the top and bottom lines on October 21. The oil and gas giant posted revenue of $7.48 billion, exceeding analysts’ estimates for $7. 10 billion. And on the bottom line, the company delivered $6.30 in earnings per share (EPS). Analysts were forecasting $5.51 EPS.

The revenue numbers were a 10% gain from the prior quarter and a 28% improvement from the prior year. The gains were even larger when it came to the company’s profit, which was up 26% from the prior quarter and 75% on a year-over-year basis.

The company cited increased offshore and international drilling as the primary catalysts for the growth from the previous quarter.

Oil Prices Likely to Remain Elevated

This didn’t come as a big surprise to investors. Oil and gas stocks have done well in 2022 as crude prices are still elevated on constricted supply. And many analysts believe it’s more likely that oil prices will remain at the same level or go higher in 2023.

In fact, on the earnings call, chief executive officer, Olivier Le Peuch forecast that the industry was in “a supply-led upcycle characterized by resilient upstream investment that is decoupled from near-term demand volatility.”

And even if that forecast does not materialize, investors can still look at SLB stock because the company's primary business is as a service provider for drilling companies. That means it’s protected from downside risk should oil prices turn lower.

What’s In a Name?

This will be the last time that investors will be referring to the company as Schlumberger. The company is moving away from the family name Schlumberger and is rebranding as simply SLB, like its stock ticker. The move is being made to reposition the company as a player in the clean energy space, a sector that the company entered in 2020.

This doesn’t mean that SLB will be exiting the fossil fuel space. But it does shine a spotlight on the company’s intention to further expand into technologies designed to curb emissions of carbon dioxide and methane. The company plans to focus on the digital transformation that is occurring in the industry.

Is Now a Time to Buy SLB Stock?

SLB stock broke above both its 50- and 200-day moving averages in early October. This new positive earnings report has pushed the stock to its 52-week high. At this point, you’re making a judgment on the price of oil itself.

If you believe that crude prices will remain elevated, then it’s logical to believe that SLB will continue to post higher revenue and earnings. I’m basing this on the fact that the company's revenue is still 12% below October 2019 levels.

Perhaps as a reflection of that, three analysts have boosted their price targets for SLB stock since the company reported earnings. That’s raised the consensus price target of analysts tracked by MarketBeat to $50.77. However, that’s right about where the stock is trading at the time of this writing.

On the other hand, crude oil is a notoriously volatile, and cyclical, commodity. And right now, purely from a technical standpoint, the stock looks a bit overbought.

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SLB's Legacy Business Is Behind Its Strong Results
 

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SLB's Legacy Business Is Behind Its Strong Results

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