Bianchi reduced his rating because he thinks Schlumberger, which has headquarters in the U.S. and Europe, might not match analysts' earnings forecasts and because he thinks the stock is near full value. He lowered his share price target to $42 from $44.
“We find SLB's strategic repositioning and guidance set up for 2020 creating downward revision risk, which may leave concerns about dividend coverage unresolved,” Bianchi wrote in a report.
Schlumberger CEO Olivier Le Peuch announced last week that the company was pulling back from the U.S. and focusing more on international projects. If he’s successful, that should “streamline the business,” allowing the company to “maintain industry leading margins with lower capital intensity,” Bianchi said.
“However, we see the process to reset these metrics being messy, creating risk to the progression of results in 2020,” the analyst added. In addition cash flow may not rise, thus failing to boost the stock price.
In its fourth-quarter earnings report last week, Schlumberger offered first-quarter guidance well below analysts’ consensus, Bianchi said. But its full-year 2020 forecast calls for a sharp rebound in profitability after the first quarter.
“While the optimistic outlook is encouraging, it seems highly dependent on execution and favorable mix later in the year, creating risk to estimates,” Bianchi said.
Le Peuch announced the change in focus largely in response to the slowdown in shale drilling throughout the U.S. oil and gas industry.
Schlumberger shares were at $37.52 on Tuesday, down 2.22%.