Shares of oil services stocks such as Schlumberger Limited. (NYSE:SLB) have been under pressure over the past three months, falling as much as 13.4% due to lower oil prices, which are now under $50 per barrel. And Schlumberger’s weak first-quarter results, combined with a miss on revenue, suggests management’s efforts to slim down operations to remain profitable will take much longer than investors would like.
SLB stock closed Friday at $74.84, down 2.18%. The shares have declined 11.8% year-to-date, trailing the 6.7% rise in the S&P 500 Index.
Schlumberger’s struggles have tracked the 8.7% decline in the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE), which has fallen 9% over the past three months. Concerns about the global oil supplies glut has sustained the downward pressure on the price of oil. The company’s earnigns results did little to lessen those fears for SLB stock.
Schlumberger: Oil Is Still a Poor Bet
For the three months that ended March, the oil and gas services company posted adjusted diluted earnings-per-share, which fell 37.5% year-over-year to 25 cents, in line with analyst views, while revenue rose 5.7% to $6.89 billion. Notably, while revenue rose for the first time in two years, it still fell short of Wall Street estimates of $6.97 billion.
“As the recovery builds momentum, industry cash flow and productivity remain under pressure and limit the industry’s ability to increase present levels of E&P investment,” said Chairman and CEO Paal Kibsgaard in a statement. “At the same time, the value chain remains focused on trying to capture the limited value that is created, rather than seeking new ways to collectively create more value.”
The revenue increase was driven by a 6% sequential rise in the North American region, which reached $1.87 billion, offsetting a 7% decline in international revenue which fell to $4.92 billion. Weakness in areas such as Asia and Africa drove international revenues lower. Kibsgaard is not speaking with the same level of confidence he has in the past. This is partly because Schlumberger — unlike chief rival Halliburton Company (NYSE:HAL) — generates the bulk of its revenue (some 60%) overseas where he expects a third straight year of underinvestment.
Increasing the pressure on SLB stock is the fact that despite the sustained pressure on oil prices, the number of U.S. oil rigs in operation continues to rise, according to Baker Hughes Incorporated (NYSE:BHI), which on Friday said oil rigs in operation rose by five to 688 this week — the 14th straight weak of gain.
Bottom line for SLB Stock
Is SLB stock, which is roughly 4% away from its 52-week low of $72, primed for a bounce after the shares on Thursday hit an 11-month low of $73.13? I’m not holding my breath — not with oil prices at under $50 per barrel, while rig counts continue to climb. Indeed, Schlumberger does have a history of creating value for shareholders, but until oil prices are well above $50 and there is confirmation that the economics of the industry are working, investors would do well to stay away from the stock.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
