Earnings Preview: Schlumberger (SLB, BHI, HAL) (July 2007)

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Schlumberger Ltd (NYSE:SLB) is the largest oil field services company in the world and it gives every appearance of keeping its leadership in the field. The stock price has jumped more than 18% since the end of the first quarter of 2007, and the consensus estimate ahead of earnings Friday for the second quarter is $0.95, up 23% from a year ago, but a penny less than the first quarter’s earnings. The stock closed at $90.54 on Monday and First Call/Thomson puts a mean analyst target price for the stock at $94.21, so there is still room for the company to grow.

SLB competitor Baker Hughes Inc. (NYSE:BHI) got hammered last week when it released guidance lowering its earnings estimate from $1.17 to $1.07 to $1.09. BHI’s problems come from its operations in Canada’s oil sands, where it expects less activity and lower profits. That should be no surprise. Development in the oil sands has hit a couple of speed bumps: environmental concerns, especially over the vast amounts of water needed to process the gooey muck; and higher labor and materials cost.

SLB doesn’t have the same exposure in North America. It’s main operations are elsewhere, including a recent operating contract with Venezuela’s PdVSA to manage rigs and provide engineeering services to the fields PdVSA recently "acquired" from Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), and ConocoPhillips (NYSE:COP). SLB’s WesternGeco division is also acquiring more small software companies that will further enhance its leadership position in exploration for new resources. 

SLB is solid, really solid, and its strategy and execution have been near perfect. It could even be argued that Schlumberger’s winning deal after deal isthe ‘tipping-point’ reason that Halliburton (NYSE:HAL) is changing itscorporate headquarters flag.  We’ll find out Friday if the company can maintain its flawless execution.

Paul Ausick
July 17, 2007