Schlumberger EPS Solid, Will It Cut CapEx?

[Stocks-to-Watch]

Schlumberger earnings rose nicely in the latest quarter and North American revenue was strong, but management offered language in its earnings report Friday that was “code for throttling back on spending, at a minimum, if warranted,” say analysts at Simmons & Co.

Shares of Schlumberger (SLB) rose nearly 2%, or $1.34, to $74.20, after the global energy services giant reported solid earnings compared to expectations, with profits of $1.11 per share vs the $1.09 per share analyst consensus; earnings in the year-ago quarter were 85 cents. Profits in the latest quarter included a penny for merger costs and a 4-cent writeoff of Libyan assets.

The company’s guidance for 2012 capital spending is $4.5 billion, up 12.5% year over year. But with so much drilling in North American shales, and the resulting weakness in natural gas prices, work could slow up this year.

Schlumberger stock is about 22% below the 52-week high of $95.64. Analysts at Simmons, the which has an overweight rating on the stock, write that

“The stock has had compelling outperformance over the past week, easily eclipsing the North American fracking-levered levered peers … the 2012 Street estimate looks ambitious at this juncture.”

Over at Dahlman Rose, longtime oilfield services analyst Jim Crandell notes that Schlumberger’s North American margins were strong at 52%, compared to 30% elsewhere. He thinks

“Schlumberger’s earnings release has modestly positive implications for the stock … Operating income of $2.041 billion was slightly above our $2.005 billion forecast. The variance was primarily due to better North American margins and a smaller improvement in Latin American margins than we had anticipated …”

Original Article Source by Barrons.com