For Immediate Release
Chicago, IL – October 15, 2010 – Zacks.com Analyst Blog features: Schlumberger Limited (SLB), Baker Hughes (BHI), Weatherford (WFT), Halliburton (HAL) and International Business Machines Corp. (IBM).
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Here are highlights from Thursday’s Analyst Blog:
SLB: A Coalition Deal in Russia
Schlumberger Limited (SLB) and Eurasia Drilling Co. (Russia’s major oil and gas driller) have joined hands for an asset swap deal and a strategic coalition in Russia.
Under the terms of the deal, Schlumberger will sell all its drilling, sidetrack and workover rigs operating in West Siberiato Eurasia. On the other hand, Eurasia will offload its drilling services business, which includes support service for 80 rigs. Financials of this deal were not disclosed.
With the uptrend in oil prices, Russian markets are drawing international attraction. While global oilfield service players are strengthening their footprints in these markets, Russian producers are also focusing on their exploration and production (E&P) businesses by offloading service units.
This deal follows Baker Hughes’ (BHI) acquisition of Siberia-based Oilpump Services in June this year and Weatherford’s (WFT) acquisition of the oilfield services unit of TNK-BP last year for $480 million. It remains to be seen how Schlumberger’s nearest rival Halliburton (HAL) reacts to this swap deal.
With Schlumberger’s superior product and technology portfolio, the company is reaping benefits from the recent surge in global E&P activities, particularly in deepwater Iraq and Russia.
Among the industry players, Schlumberger has perhaps managed its asset portfolio most actively. Year-to-date, the company has completed a few small acquisitions, namely Nexus Geo and Geoservices, in the technology space. This, along with its strong international footprint and favorable oil economics, will keep the company’s long-term prospects positive, in our view. The company is currently rated Neutral for the long term, with a Zacks #3 Rank (Hold) in the short term.
Neutral on IBM, Pre-Earnings
Tech giant International Business Machines Corp. (IBM ) expects to release its third quarter 2010 results on October 18, 2010. We maintain a Neutral rating on IBM over the long term while the stock currently has a Zacks #3 Rank, implying a Hold on a short-term basis.
Estimate Trend
With a strong portfolio of products and solutions, IBM has raised its EPS guidance for almost every quarter over the last two years. For fiscal year 2010, the company again raised its earnings forecast to at least $11.25 per share from the previously projected $11.20 per share, a 16.0% compound growth rate from 2006 levels. Management expects to achieve earnings of at least $20.00 per share by the end of 2015 with strong revenue growth, operating leverage and geographical expansion.
Estimates for 2010 and 2011 revenues and earnings are marginally up, attributable to strong earnings growth potential, margin expansion, strong free cash flow growth, operational efficiency, cost containment efforts, growing high margin software and services business, increased acquisition and robust product pipeline.
The current Zacks Consensus Estimates for the third quarter and full year 2010 are earnings of $2.75 and $11.28 per share, respectively, above the company’s expectations.
Recommendation
IBM’s growth initiatives, such as smarter planet and industry frameworks, growth markets, business analytics and optimization and cloud computing have driven significant growth opportunities and generated high profit margins for the company. These initiatives are expected to deliver $30 billion in revenues in fiscal 2010. We remain highly positive on these initiatives.
IBM is experiencing a strong revenue growth in all geographical regions, with a robust growth in emerging markets worldwide. The emerging countries of Brazil, Russia, India and China (BRIC) together grew 22.0% in the second quarter of 2010, validating the company’s strength in emerging markets.
Growth markets represented 20.0% of IBM’s revenues and were up 14.0% year over year in the second quarter of 2010. The growth market is expected to contribute 25.0% to IBM’s total revenue by 2015, up from 15.0% in 2005.
With increased payout and share repurchases, IBM is a long-term value stock for investors. We remain positive on IBM’s growth potential.
However, currency headwinds, European weakness, increasing competition, late hardware recovery, lower service contract signings and weak IT spending are headwinds. We believe IBM will need to grow its top line, in addition to encouraging profit guidance to restore investors’ confidence.
We do believe that IBM is fundamentally a sound company and has a strong market position but our caution is based on expected near-term headwinds. We advise stockholders to wait for a favorable entry point.
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