Schlumberger Limited (SLB) is expected to report its third quarter 2010 results on October 22, 2010. The Zacks Consensus Estimate for the quarter is 70 cents per share compared with 65 cents earned in the year-earlier period. Total revenue is projected at $6.7 billion for the quarter.
Second Quarter Flashback
Schlumberger’s second-quarter earnings, though flat year over year, had come ahead of the Zacks Consensus Estimate, driven by rapid onshore North American activity levels that offset weakness from the drilling moratorium in the Gulf of Mexico (GoM).
The company’s second quarter revenue had been up 7.4% from the year-ago quarter and comfortably exceeded the Zacks Consensus Estimate.
Agreement of Analysts
In last 30 days, out of 27 analysts covering the stock, two revised their earnings estimates upward, while eight analysts moved in the opposite direction for the third quarter. Hence, most of the analysts remain pessimistic on the third quarter, reflecting concerns about the new tax rate and share repurchase expectations due to the Smith International acquisition. Moreover, in the last 7 days, three analysts made a downward revision for the third quarter, while none revised the estimate upward.
Magnitude of Estimate Revisions
Owing to the revision of estimates by the analysts over the past 30 days, the Zacks Consensus Estimates for the third quarter went down from 72 cents to 70 cents. However, estimates have not changed in the past 7 days implying that the company is expected to report in line results.
For fiscal 2010, estimates have slipped from $2.79 to $2.78 per share as seen in the past 30 as well as 7 days. A similar trend can be seen for 2011, with estimates going down by a penny to $3.80.
Positive Surprise
Schlumberger has typically come ahead of the Zacks Consensus Estimate in the range of 1.49% to 6.35% over the last four quarters, with the average at 3.58%. As such, they have a history of small positive earnings surprises.
Our Take
Schlumberger’s North American business is expected to benefit from a revival in oil drilling in service-intensive areas. The current North American fundamentals are certainly robust, but higher activity and an influx of new equipment may result in 2011 being the peak.
However, internationally, the company continues to experience gradual improvement, with strong results in Russia, the North Sea and Caspian, while Mexico, West and South Africa, and North Africa continue to be lackluster.
Hence, we prefer to remain Neutral at this stage. Moreover, Schlumberger holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.
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