SLB Poised For Long-Term Growth Amidst Middle Eastern Demand, Analyst Predicts

Susquehanna analyst Charles P. Minervino reiterated a Positive rating on Schlumberger N.V. SLB, raising the price target to $68 from $65.

The analyst is particularly bullish about long-term demand from the Middle East (a very compelling opportunity for SLB), with a record level of investment required to expand capacity in the region. 

The analyst notes that most of the investment will likely occur in 2025 and beyond, with some opportunities as far out as 2030. 

SLB reported a second-quarter FY23 revenue increase of 19.6% year-over-year to $8.10 billion, missing the consensus of $8.22 billion. Adjusted EPS increased 44% Y/Y to $0.72, beating the consensus of $0.71.

Overall, SLB delivered solid results in 2Q23, with revenue coming in slightly lower than the analyst's estimates on better-than-expected margins. 

Minervino thinks SLB will play a key role in many of the global energy trends and will likely see a long-term runway for earnings growth.

The analyst notes that SLB is relatively well-insulated (but not entirely immune) from a softer North American market environment. 

With the current market environment likely to extend into 2H23, the analyst thinks SLB will forego pricing concessions to grow revenue, given the company's focus on increasing margins.

Consequently, Minervino expects North American revenue to be down sequentially in 3Q23. 

The analyst lowered 3Q23/2023 revenue estimates to $8.3 billion/$33 billion (vs. $8.4 billion/$33.2 billion prior). 

Minervino also lowered 3Q23/2023 EBITDA to $2.04 billion/$8.01 billion (vs. $2.13 billion/$8.13 billion prior), based on lower revenues and slightly lower margin growth.

Price Action: SLB shares are trading higher by 1.14% to $56.65 on the last check Monday.