Wall Street Positive On Schlumberger Limited (NYSE: SLB), Earnings On January 21
Monday, January 10, 2011 1:01 PM

Schlumberger Limited (NYSE: SLB), provider of oil & gas, drilling & exploration equipments, is expected to release its Q4 FY 2010 earnings on January 21, 2011. In the last four quarters ending September 2010, Schlumberger's earnings exceeded the analysts' consensus by margins in the range of 1.40 percent and 4.70 percent.

Schlumberger Limited (Schlumberger) is a supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry. The Company operates in two business segments: Schlumberger Oilfield Services and WesternGeco. The Schlumberger Oilfield Services provides range of products and services from exploration to production. WesternGeco is an advanced surface seismic acquisition and processing company. In March 2010, the Company acquired Geoservices, a French oilfield services company.

In the third quarter FY 2010, Schlumberger reported revenue of $6.85 billion compared to $5.94 billion in the second quarter of 2010, and $5.43 billion in the third quarter of 2009. Net income for the quarter was $875 million, an increase of 7 percent sequentially and 11 percent against the third quarter FY 2009. Diluted earnings per share were $0.70 compared to $0.68 in the previous quarter, and $0.65 in the third quarter of FY 2009. Oilfield Services revenue of $5.54 billion increased 2% sequentially and 12% against third quarter of FY 2009. WesternGeco revenue of $478 million increased 1% sequentially and 3% year-on-year.

On August 27, 2010, Schlumberger closed its merger with Smith, with each Smith's stockholder receiving 0.6966 shares of Schlumberger common stock in exchange for each Smith share, with cash paid in lieu of any fractional shares of Schlumberger common stock. Schlumberger issued approximately 176 million shares pursuant to the merger, representing a transaction value of over $11 billion.

During the quarter, the company repurchased 6.8 million shares of its common stock at an average price of $57.91 for a total price of $396 million under its stock repurchase program approved by the board of directors on April, 2008. On April 17, 2008, the Schlumberger Board of Directors approved an $8 billion share repurchase program for Schlumberger common stock, to be acquired in the open market before December 31, 2011.

During 2008 and 2007, Schlumberger announced that its Board of Directors had approved increases in the quarterly dividend of 20% and 40%, respectively. Total dividends paid during 2009, 2008 and 2007 were $1.0 billion, $964 million and $771 million, respectively. On October 21, 2010, its board of directors declared a quarterly dividend of $0.21 per share of outstanding common stock. The dividend is payable on January 7, 2011 to stockholders of record at the close of business on December 1, 2010.

For the fourth quarter, analysts' EPS estimates range from the low of $0.72 to $0.83 per share, compared to consensus estimate of $0.77 per share or $0.67 in the year ago quarter. Analysts' revenue estimates range from a low of $8.25 billion to a high of $9.17 billion, compared to a consensus estimate of $8.68 billion or $5.74 billion in the same quarter a year ago. The consensus EPS forecast has remained the same over the past week to past 60 days at $0.77 for the quarter ending December 31, 2010.

In November 2010, Harris Corporation (NYSE: HRS) announced its intentions to acquire the Global Connectivity Services business from Schlumberger Information Solutions, a unit of Schlumberger, for approximately $400 million, pending necessary approvals, and at an enterprise value/EBITDA multiple of 9.7X.

The stock has been trading in the range of $51.67 and $84.55 in the last 52 weeks. Schlumberger's stock closed at $80.53, down $1.04 or 1.28 percent on January 10, 2011. However, in the last one year the stock price gained $10.01 or 14.17%. I think SLB, like its peers, has benefited recently from the ramp-up in North American shale play activity. While I see SLB as better positioned than peers to benefit from expected wider international margins in 2011, I see this as largely factored into the share price, and think SLB is trading at above-average historical forward multiples for EBITDA and cash flow. So, though I forecast FY2011 EPS at $3.70 per share I set a one year target price of $85.6 only.



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