Key Takeaways
- SLB had Q4 2024 earnings of 92 cents per share, which beat the Zacks Consensus Estimate of 90 cents.
- The oilfield service giant recorded quarterly revenues of $9.28 billion, which also beat estimates of $9.18 billion.
- Still, over the past year SLB stock has lost 12.3% against the industry's rally of 11%
Last week, SLB SLB reported strong fourth-quarter 2024 results, driven by earnings growth from the Digital & Integration and Production Systems business segments. Despite the positive, the oilfield service giant's overall business outlook is not impressive.
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
Before delving into the underlying reasons for the subdued outlook and addressing how investors should position themselves regarding the stock, let’s first review the fourth-quarter results.
SLB’s Q4 Earnings Snapshot
On Jan. 17, SLB reported fourth-quarter 2024 earnings of 92 cents per share (excluding charges and credits), which beat the Zacks Consensus Estimate of 90 cents. The bottom line increased from the year-ago quarter’s level of 86 cents.
The oilfield service giant recorded quarterly revenues of $9.28 billion, which beat the Zacks Consensus Estimate of $9.18 billion. The top line also improved from the year-ago quarter’s figure of $8.99 billion.
Along with the quarterly earnings, SLB announced approvals from the board of directors to hike quarterly dividends by 3.6%. The company has also decided on an accelerated share repurchase program involving the repurchase of $2.3 billion of its common stock. Notably, the ASR is part of SLB’s broader plan to return a minimum of $4 billion to shareholders in 2025 through dividends and stock repurchases.
Halliburton Company HAL and Baker Hughes BKR, two other leading players in the oilfield services sector, are yet to report fourth-quarter earnings.
Cautious Spending & U.S. Market Weakness Pose Hurdles for SLB
Baker Hughes reported an international rig count of 926 for the December quarter, a notable decline from 937 rigs in the previous quarter and 965 rigs in the fourth quarter of 2023. This reduction indicates a broader trend where exploration and production companies are probably implementing cuts in their capital expenditure budgets for drilling activities. This shift is primarily due to increased pressure from shareholders, who are advocating for capital returns over further investments in exploration and production.
Image Source: Baker Hughes Company
Lower drilling activities could diminish demand for services from major oilfield service provider SLB in the international market, which contributes significantly to the company’s revenues.
The company also anticipates a downturn in North American upstream activity due to lower capital investments, enhanced drilling productivity and a sluggish rebound in natural gas markets.
Exposure to Russia & Overvaluation Spark Concerns for SLB
SLB faces significant headwinds in Russia, where revenues have dwindled to just 4% of the company’s global total in 2024 from 5% the prior year. This steep reduction underscores the severe impact of escalating geopolitical tensions and stringent sanctions. In response, SLB has been compelled to implement restrictive voluntary measures, including the cessation of product and technology shipments from its global facilities to Russia. As geopolitical complexities intensify and new U.S. sanctions come into effect, the company’s ability to operate in the region remains severely constrained, further jeopardizing its growth prospects in this critical market.
All these risk factors are reflected in SLB's price performance. Over the past year, the stock has lost 12.3% against the industry’s rally of 11%.
One-Year Price Chart
Image Source: Zacks Investment Research
Despite the price decline, SLB still appears relatively overvalued, indicating the potential for further price decreases. The company's current trailing 12-month enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA) ratio is 7.74, which is trading at a premium compared to the broader industry average of 7.28.
Image Source: Zacks Investment Research
Time to Get Rid of SLB
With clients becoming increasingly cautious in their discretionary spending and SLB grappling with substantial challenges in Russia, getting rid of this overvalued stock seems to be a wise decision, as the firm’s initiative to return capital to shareholders may not address the underlying pressures on its business fundamentals. The stock currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Today, See These 5 Potential Home Runs >>Schlumberger Limited (SLB) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
