Its recent quarterly scorecard is equally disappointing: a loss of $1 billion and plans to downsize 10,000 jobs. It's why Schlumberger is among a group of stocks that are terrible places for your money today.
Wall Street is clearly not impressed -- price targets are being lowered, investors are selling shares and analysts are suggesting Overweight recommendations for the stock.
So what went wrong with Schlumberger?
In the words of Chief Executive Paal Kibsgaard, a turnaround in Schlumberger's possibilities is a distant prospect: "A significant recovery in oilfield activity is not expected until 2017."
For oil field services stocks like Schlumberger, Halliburton, Baker Hughesand National Oilwell Varco(with the exception of Cameron International, soon to be acquired by Schlumberger), the last 12 months or more have been witness to losses of 20%-to-47% in share price.
In fact, things could go further south this year. Schlumberger's Chief Financial Officer Simon Ayat recently admitted that keeping profit margins at current (depressed) levels would be tough.
Currently, analysts are projecting a 30% downswing in earnings-per-share (EPS) this year. There's little respite going forwards. Over the next five years, Schlumberger is expected to report a 14.22% drop in EPS every year.
Schlumberger's fourth-quarter earnings were heartening, with better than expected figures (EPS of $0.65 beating expectations by $0.02). Revenues, however, continued to reflect a 39% year-over-year decline, coming in at $7.74 billion, missing expectations. Initial reports were positive, after the earnings call given that Schlumberger was launching a new $10 billion stock buyback program. Schlumberger's also striving to manage costs -- as mentioned earlier, over 25% of its global workforce has been downsized.
Notwithstanding these efforts, Schlumberger's fortunes are intrinsically linked to the oil market.
Popular ratings agencyMoody's recently put the company under review, citing weak oil price recovery among other factors. An actual downgrade could bring in a fresh spell of bad times.
The company's dividend yield at 3.07% (bloated partially because of the stock price drop) is indeed tantalizing, but dividend growth could be a problem, since the company's fortunes are dwindling coupled with a high payout ratio (at 83.7%); Compare these numbers to sector peers like Halliburton (48.6%), National Oilwell Varco (61.7%) and Oceaneering International (38.8%), and you know you're looking at a problem.
At current price levels (and after the stock price drop over the past few months), Schlumberger is a risky prospect. Analysts though are penciling in a 12-month median price target of $87, translating into a 33.4% upside from current levels. Should you believe them, or is SLB's decline unstoppable?
The bigger picture contradicts the sanguine analyst price projection. The general situation around the oilfield services market won't undergo a turnaround anytime soon.
With the China led commodities boom on the wane and global slowdown in growth heavily impacting the oil production market and prices, there is no easy solution for Schlumberger's multiple woes. You're best to avoid this stock or, if you own it, sell it immediately.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.