Schlumberger is still sliding

The firm reports its third-quarter figures on 15 October, and the weak oil prices is hitting its profitability.

Oil rig
Source: Bloomberg

The share price of the company has been sliding in line with the fall in oil. The oil services-company can’t get away from the fact the price of oil determines how much energy producers spend, and in turn how much business Schlumberger receives. Capital expenditure budget of major oil producers, of whom Schlumberger depend on their custom, has been slashed to reflect the slump in the price of oil.

In the second-quarter Schlumberger posted a 30% fall in earnings, but cost cutting helped the earnings per share come in ahead of expectations. Its business in North America witnessed a 39% fall in revenue, while the rest of the world registered a 19% fall in sales. The operations in the US and Canada is tipped to keeping suffering, as the company expects revenue in the region to fall by 35%, and the previous guidance was only a 30% decline.

According to Baker Hughes, the international rig count in September 2015 was up three to 1140 from August, but was considerably below September 2014’s rig count of 1323. This could be an early indication that rig count is on the rise, which would benefit Schlumberger.

There are rumblings coming out of the Middle-East that oil rich states like Saudi Arabia and the UAE are heading towards budget deficits. Should they see public expenditure being cut it may indicate they are willing to reassess their productions levels. Schlumberger is heavily influenced by the price of oil and clues as to what OPEC will do regarding oil price will have a major impact on its share price. 

When Schlumberger reports its numbers, dealers are expecting revenue of $8.58 billion and EPS of 77 cents, and this compares with second-quarter revenue and EPS of $9.01 billion and 88 cents. The company will announce its full-year results in January 2016, and the market is anticipating revenue of $36.44 billion and EPS of $3.4. These estimations equate to a 25% drop in revenue and 39% decline in EPS.

Investment banks are bullish on Schlumberger, and out of the 42 recommendations, 30 are buys, nine are holds, and three are sells. The average target price is $95.96, which is 27% above the current price. Equity analyst are also bullish on Halliburton, and out of the 35 ratings, 26 are buys, eight are holds, and one is a sell. The average target price is $48.48, which is 21% above the current price.

Since the second-quarter figures for Schlumberger were announced in July, the number of short positions has increased by 160%. The short interest in the stock is at its highest level in one year.

The share has been in decline since May, and the support at $68 is the target. Even though the stock has tracked oil higher in early October I feel the outlook is bearish, and should it keep pushing higher, $77.60 is the initial resistance, and a move through it would bring $80 into slight. 

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