Digital Partnerships With NVIDIA And AWS Will Strengthen Future Prospects

Key Takeaways

• Strategic expansion into low-carbon and digital markets, alongside strong partnerships, positions SLB for significant revenue growth and margin improvement.
  
• Focus on capital discipline, cost optimization, and increased shareholder returns aims to enhance EPS and drive shareholder value.
  
• Mixed global market dynamics, including North American decline and international volatility, pose challenges to Schlumberger's revenue growth and earnings stability.

Catalysts

Engages in the provision of technology for the energy industry worldwide.

• SLB's strategic expansion into low-carbon and digital infrastructure markets, with revenue from these activities exceeding $850 million in 2024 and expected to grow significantly in 2025, could drive future revenue growth.
  
• The company's growing digital business, supported by strategic partnerships with industry leaders like NVIDIA and Amazon Web Services, is expected to maintain high-teens revenue growth, positively impacting overall margins and earnings.
  
• SLB's diversified portfolio and strong presence in the Middle East, despite declines in some regions, positions the company to benefit from global upstream investment steadiness, potentially stabilizing or increasing revenue.
  
• The integration of ChampionX and the continued investment in production systems and technology could enhance production recovery, supporting revenue growth and margin improvement.
  
• SLB's focus on capital discipline, margin protection strategies, cost optimization, and increased shareholder returns, including a significant accelerated share repurchase program, are expected to enhance earnings per share (EPS) and drive shareholder value.

Schlumberger Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Schlumberger's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.3% today to 14.9% in 3 years time.
• Analysts expect earnings to reach $5.9 billion (and earnings per share of $4.19) by about January 2028, up from $4.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $6.6 billion in earnings, and the most bearish expecting $5.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.1x on those 2028 earnings, up from 13.0x today. This future PE is greater than the current PE for the US Energy Services industry at 14.6x.
• Analysts expect the number of shares outstanding to grow by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.29%, as per the Simply Wall St company report.

Schlumberger Future Earnings Per Share Growth

Risks

• SLB's revenue in North America declined by 1% year-on-year in 2024, indicating challenges in maintaining growth in this region due to pricing pressure and technological changes, which could impact future revenue streams.
  
• The ongoing decrease in oil and gas activity in North America, due to lower announced CapEx, higher drilling efficiency, and unresolved LNG capacity expansions, may lead to reduced revenues and affect the overall market outlook.
  
• China's and India's increasing investments in oil and gas are expected, but declines in spending in countries like Saudi Arabia, Mexico, and Guyana pose risks of offsetting potential revenue gains, highlighting international market volatility which could impact earnings.
  
• Concerns about an oversupplied oil market in late 2024 have led customers to adopt a cautious approach, impacting discretionary spending, which could restrain SLB's revenue growth in the near term if these concerns persist.
  
• The market's mixed dynamics with strong growth in some regions balanced by declines in others present risks to stabilizing net margins, which could lead to fluctuating earnings stability throughout different global markets.

Valuation

• The analysts have a consensus price target of $53.27 for Schlumberger based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $64.0, and the most bearish reporting a price target of just $44.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $39.8 billion, earnings will come to $5.9 billion, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 8.3%.
• Given the current share price of $41.32, the analyst's price target of $53.27 is 22.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.