On Tuesday, JPMorgan revised its outlook on SLB (NYSE: SLB) stock, a leading oilfield services company, by reducing the price target from $64.00 to $60.00. The firm maintained an Overweight rating.
The adjustment reflects a cautious stance due to anticipated softer spending trends in the latter half of 2024. This caution is driven by a pullback in oil prices, which has led to spending restraint among some international oil producers amid signs of abundant global supplies.
The current environment is also influenced by various geopolitical and economic factors, including the upcoming U.S. election, leadership changes in Latin America, and OPEC+ policy decisions.
Despite these challenges, SLB is expected to continue its focus on margin improvement, leveraging cost optimization measures, digital adoption, and targeting higher margin opportunities. The company has already incurred a pre-tax charge in the second quarter for cost reduction efforts, with another anticipated in the third quarter.
According to JPMorgan's assessment, SLB's third-quarter revenue is projected to grow by 1% sequentially to $9.23 billion, which is at the lower end of the company's guidance.
The forecast for third-quarter EBITDA stands at $2.33 billion, slightly below the Street's estimate, with earnings per share (EPS) expected at $0.88, compared to a median consensus estimate of $0.90. The company has also resumed its share buyback program after a hiatus, signaling a return of cash to shareholders.
Looking ahead to the fourth quarter, JPMorgan anticipates a 2.5% sequential revenue increase to $9.46 billion and an improvement in EBITDA margins. The firm's revised estimates for fourth-quarter EPS and EBITDA are $0.94 and $2,448 million, respectively, which are below the Street's expectations.
For the full year 2024, JPMorgan's revenue and EBITDA projections are slightly lower than previous forecasts, yet the firm expects SLB to generate substantial free cash flow and return approximately $2.97 billion to shareholders through dividends and buybacks.
In a positive development, SLB is planning to sell its APS business in Canada, which is anticipated to clarify the growth and margin outlook for the company's digital segment. However, expectations for significant proceeds from the sale are tempered by low gas prices and associated liabilities.
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