Oil field services company SLB (NYSE: SLB) has seen a 10% decline in its stock price since the beginning of the year, currently trading at around $47 per share. Despite this, the company is expected to have upside potential in the longer run, especially in comparison to its peer Halliburton (NYSE: HAL), which is down 7% this year. SLB provides drilling, completion, and production solutions to upstream oil & gas companies internationally, with a strong resurgence in international and offshore markets driven by long-cycle development projects and capacity expansions. However, the outlook for SLB’s largest revenue source, the Middle East, remains uncertain due to geopolitical tensions and constraints by OPEC.
While SLB stock has seen significant gains over the past three years, it has underperformed the S&P 500 index in 2023. Consistently beating the market has been a challenge for individual stocks in recent years, including heavyweights in the Energy sector and even megacap stars like GOOG, TSLA, and MSFT. The Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period. With the current macroeconomic environment being uncertain, the question arises whether SLB will face a similar situation as in 2023 and underperform the S&P, or if it will see a strong jump in performance.
SLB reported a rise in net income for Q1 2024, driven by growth in international markets. The company’s top line also saw a 13% year-over-year increase, with international revenue jumping by 18%, while North American revenue fell by 6% due to reduced drilling activity. SLB’s revenue growth in international markets was led by increases in the Middle East/Asia, Europe/Africa, and Latin America. By segment, Well Construction, Production Systems, and Reservoir Performance all saw revenue growth in Q1. The company expects a seasonal rebound in Q2, with growth anticipated internationally and in North America.
In April 2024, SLB acquired ChampionX Corp in an all-stock deal valued at $7.8 billion. This acquisition is expected to enhance areas where both companies have weaknesses, such as ChampionX’s production chemicals segment and SLB’s artificial lift segment. As a result of this acquisition, SLB announced an increase in shareholder returns for fiscal 2024 and 2025. The company repurchased shares in the first quarter and plans to continue increasing shareholder benefits throughout the year.
Looking ahead, SLB is forecasted to see revenue growth of 13% year-over-year for fiscal year 2024, with expected EPS of 3.63. Based on these projections, the company’s valuation has been revised to $53 per share, representing a 12% increase from the current market price. SLB’s leading position, global reach, and strong financials provide a solid foundation for growth and profitability in the long term. Peers comparisons show how SLB’s stock stands against its competitors on important metrics, providing investors with valuable insights for decision-making.
