Oilfield services are in an upcycle with no end in sight: Schlumberger, doing business as SLB (NYSE: SLB), is in a perfect position to capture value and is leveraging AI to do it. The upcycle is driven by factors including underinvestment before 2020 and technology. In this case, the technology centers on improvements in oilfield equipment coupled with the Lumi platform. Lumi is SLB’s oilfield-specific AI platform.
“AI is the X factor for our industry, and I am confident that SLB will continue to be a leader in this area, enabling us to deliver sustained outperformance for our customers, partners, and shareholders,” stated SLB CEO Olivier Le Peuch.
Lumi is an on-premise or cloud-based service using generative AI and LLMs to unlock insight from complex data sets across cloud domains. The services improve efficiency and accuracy at all levels, from exploration to extraction, significantly reducing costs and CO2 impact. To make it easier to adopt and use AI, Lumi isn’t the only AI service. SLB also offers AI Factori. AI Factori is a B2B service customizing AI applications for oilfield operators that scale as they grow.
SLB Beats as Technology Investment Drives Growth
SLB Q4 growth decelerated sharply as expected but remains strong, outpacing the analyst's expectations as investment in technology offset weakness in well-construction. The $9.28 billion consolidated revenue is up 3.2% year-over-year and 100 basis points above MarketBeat’s analyst consensus. Digital & Integration led with a 10% growth, trailed by a solid 9% gain in Production Systems, a small 4% advance in Reservoir Performance, and was offset by a 5% decline in Well Construction.
The Q4 and year-end margin results are also good. The company widened its margins at most operating levels, driving a system-wide improvement and accelerated high-single-digit GAAP and adjusted earnings increases. Adjusted earnings grew by 7% and beat consensus by more than 200 basis points, with strength expected to persist. The only bad news is that net income is down due to investment and capital return. The takeaway is that this company has a solid cash and free cash flow, expected growth, and a sustainable capital return.
SLB Announces Accelerated Share Repurchase
Capital return in Q4 included dividends and share repurchases. The dividend distribution annualizes to over 2.5% yield and is compounded by robust share repurchases. Q4 buybacks were nearly 1% of the mid-January market cap, and full-year were over 3%. The balance sheet is healthy, with positive free cash flow for the quarter and year, allowing for balance sheet improvement and accelerated share repurchase in Q1 2025. The company announced a $2.3 billion ASR that is mainly completed, bringing the total Q4 2024/Q1 2025 buybacks to roughly 8% of the market cap.
Buybacks are expected to continue robustly because of the cash flow and balance sheet health. The year-end highlights include increased cash, receivables, current and total assets, and flat inventory with no increase in total liability and low leverage. Equity is up more than 4.5% for the year; long-term debt is about 0.5x equity and 3x cash, leaving it in a fortress condition.
SLB Shares Rise to Critical Resistance Point: A Double Digit Gain Is Possible
SLB price action in 2024, creating a deep-value opportunity for investors. The stock trades at roughly 12x its mid-January earnings outlook while paying more than 2.5% in yield. The latest price action shows the market rebounding from a support target and on track to test critical resistance. The post-release action has the market up another 2% and on the verge of setting fresh highs. The critical resistance point is near $42.75 and may be easily broken because it is below the analysts' target range. The lowest target tracked by MarketBeat is $44, which is 3% above the critical resistance, with a 35% gain indicated at the consensus target.
