SLB Defies Market Expectations, Says JP Morgan

JP Morgan analyst Arun Jayaram reiterated an Overweight rating on the shares of Schlumberger NV SLB and raised the price target from $48 to $50.

SLB shares surged by 6.1%, outperforming the OSX index by 397 basis points, following its fourth-quarter FY24 report, driven by stronger-than-expected guidance for 2025 and positive cash return projections, said the analyst.

Heading into the earnings release, both consensus and the analyst’s 2025 earnings forecasts were reduced due to concerns over spending challenges in key markets like Saudi Arabia, Mexico and NAM.

Given the slowdown in global spending trends, it was widely anticipated that the company would lower its 2025 projections, noted the analyst.

However, SLB surprised the market by maintaining a flat year-over-year revenue expectation of around $36 billion for 2025.

Additionally, the company expects to sustain flat year-over-year EBITDA and margins, with 2024 adjusted EBITDA at $9.1 billion and 25% margins. SLB also plans a divestiture of its Palliser APS business, expected to close by the end of Q1 2025.

Palliser contributed approximately $500 million in revenue and $250 million in EBITDA in 2024. The company attributed its 2025 outlook to portfolio diversification, digital growth, and increased exposure to production and recovery sectors, said the analyst.

The analyst now anticipates first-quarter FY25 revenue of $8.6 billion (compared to $8.7 billion previous year) and EBITDA of $2.05 billion (versus $2.06 billion last year).

According to the analyst, SLB is rapidly advancing the use and integration of digital technologies, recognizing it as a major driver of growth for the company.

In fourth-quarter FY24, revenue from its Digital & Innovation (D&I) segment increased by 6.3% sequentially, reaching $1.2 billion, fueled by a 20% year-over-year growth in digital, with cloud, AI, and edge technology contributing to a 35% rise.

Despite well-documented challenges in Saudi Arabia, the company remains optimistic about the broader Middle East, anticipating growth in markets like the UAE, Iraq, Qatar, and Kuwait to offset declines in Saudi Arabia.

LB generated $850 million in revenue from low-carbon activities in 2024, covering areas like CCUS, Geothermal energy, and emerging sectors such as data center infrastructure solutions and sees growth heading into 2025.

SLB's fourth-quarter FY24 cash return was $890 million, slightly below the analyst’s estimate of $901 million, as the company repurchased $501 million worth of shares, falling $13 million short of the projection.

The analyst forecasts $1.9 billion in buybacks for 1Q25 and $400 million for 2Q25.

Price Action: SLB shares are trading higher by 1.04% at $44.02 at the last check Tuesday.