Schlumberger Limited SLB is expected to report fourth-quarter 2017 earnings on Jan 19, before the opening bell.  

Last quarter, the company’s earnings of 42 cents per share were in line with the Zacks Consensus Estimate. Also, the company posted an average positive earnings surprise of 4.17% for the last four quarters.  

Let’s see how things are shaping up prior to the announcement.

Which Way Are Estimates Headed?

Let’s look at the estimate revision trend to get a clear picture of what analysts expect from the earnings release.

The Zacks Consensus Estimate of 44 cents for the fourth quarter has been stable in the last seven days. It reflects growth of about almost 63% from the year-ago quarter.

Further, analysts polled by Zacks expect revenues of $8,116 million for the quarter, up 14.2% from the prior-year quarter.

Factors to Consider

The West Texas Intermediate (WTI) crude increased almost 20% in the October-to-December quarter of 2017, per The U.S. Energy Information Administration (EIA). Through most of November and the entire December, the commodity traded above the $55-per-barrel psychological mark. The extension of the production cut deal by OPEC players supported the rally in crude. 

On Nov 30, 2017, OPEC members met non-OPEC players to decide on an extension of the crude production cut accord, first signed in late 2016, beyond the first quarter of 2018. More than 20 oil producers, including leading exporters like Russia and Saudi Arabia, participated in the meeting. As expected by most analysts, all crude exporters decided to extend the deal through 2018-end. Saudi Arabia, Russia, and their allies have pledged to put 1.8 million barrels a day of crude oil out of the market through the end of this year.

Improvement in crude price will likely be favorable for Schlumberger as oilfield service businesses are positively correlated with crude price. This is reflected in the Zacks Consensus Estimate for each of the company’s business segments.

The Zacks Consensus Estimate for the Reservoir Characterization segment’s earnings-before-tax stands at $318 million, higher than $316 million recorded in the year-earlier quarter.

Moreover, for the Drilling unit, the Zacks Consensus Estimate for earnings stands at $307 million, up from $234 million in the prior-year quarter.

The balance sheet looks solid as Schlumberger’s total current assets of $19.9 billion — as of Sep 30, 2017 — is higher than $13 billion of current liabilities. The long-term debt level is slightly discouraging as $15.9 billion is higher than $10.6 billion as of Dec 31, 2014.

 

 

Q4 Price Performance

In the fourth quarter, shares of Schlumberger underperformed the industry. The stock lost 3.4% compared with the industry’s decline of 1.8%.

 

 

Earnings Whispers

Our proven model does not conclusively show that Schlumberger is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -3.01%. This is because the Most Accurate estimate is pegged at 43 cents, while the Zacks Consensus Estimate stands at 44 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Schlumberger carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s negative Earnings ESP makes surprise prediction difficult. 

Meanwhile, we caution investors against stocks with a Zacks Rank #4 or 5 (Sell Rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.  

Stocks to Consider

Though an earnings beat looks uncertain for Schlumberger, here are a few firms that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat this quarter:

Headquartered in Irving, TX, Pioneer Natural Resources Company PXD primarily explores oil and gas and hence is an upstream energy player. The company has an Earnings ESP of +2.45% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Houston, TX, Cabot Oil & Gas Corporation COG is also an upstream energy player. The company has an Earnings ESP of +2.81% and sports a Zacks Rank #1.

Headquartered in Houston, TX, Occidental Petroleum Corporation OXY  is a leading integrated energy firm. The company has an Earnings ESP of +8.28% and a Zacks Rank #1.

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Schlumberger N.V. (SLB): Free Stock Analysis Report
 
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