It’s Time To Buy Into The Schlumberger “Supercycle”

Analysts Are Driving Schlumberger Higher 

The analysts are driving shares of Schlumberger NYSE: SLB higher and we think this is just the beginning of a very long trend. The entire oil industry is supported by fundamental factors that should keep them busy and prices high for the foreseeable future and no one is better positioned to capture industry strength than Schlumberger. The oilfield services company is already in high demand and forecasting what it calls the next oil supercycle, a supercycle driven by rising demand and tight supply. 

“The industry macro fundamentals are very favorable,” says CEO Olivier Le Peuch “due to the combination of projected steady demand recovery, an increasingly tight supply market, and supportive oil prices … Absent any further COVID-related disruption, oil demand is expected to exceed prepandemic levels before the end of the year and to further strengthen in 2023. These favorable market conditions are strikingly similar to those experienced during the last industry supercycle, suggesting that resurgent global demand-led capital spending will result in an exceptional multiyear growth cycle.”

As for the results, the company reported $6.22 billion in net revenue for a gain of 12.5% over last year. This is still down on a two-year basis but beat the Marketbeat.com consensus estimate by 210 basis points with momentum clearly building within the industry. More importantly, the adjusted EPS of $0.41 is up on a two-year basis and near a record level. 

Analysts Up Their Price Targets For Schlumberger 

Schlumberger’s Q4 results and outlook for 2022 were so robust the analysts have begun to raise their targets again and the targets have been on the rise for the last year. So far there have been 4 price target increases that amount to a consensus of $43.50 compared to the Marketbeat.com broad consensus of $36.94. The Marketbeat.com consensus assumes about 6% of upside for the stock and it has been rising steadily for the last 12 months, up 80% from 1 year and nearly 6% in the last month alone. 

This matches the institutional sentiment which is also bullish and rising but there is a difference. While institutional activity has been net bullish for the last year activity slowed in the 3rd and 4th quarter of 2021 and has remained muted in the first few weeks of 2022. Regardless, the institutions own close to 75% of the company with holdings on the rise. Price action in the stock may fall in the near term but there is solid support for it over the long term. 

Therw Is A Dividend Hike In Schlumberger’s Future 

Schlumberger cut its dividend early in the pandemic to preserve capital and good thing it did. Now, more than two years later, with the market in recovery, the company is on track to raise the dividend if not put it back to the earlier level. The timeline for the increase is still a little hazy but could coincide with the greater oil-services market reaching pre-pandemic levels late in 2022. 

The Technical Outlook: Schlumberger Is Ready To Move Higher 

Shares of Schlumberger have been slow to recover in the wake of the pandemic but they are recovering along with the industry. Price action is pulling back now but has been trending higher and appears to have quietly broken out of its COVID-19 induced range. Assuming this break out is true, we see price action confirming support at or above $31 (or thereabouts, the short-term EMA is just below $31) and then trending higher into the end of the year.