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Analysts look to another bumpy quarter for oilfield services majors in Q4'19

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Analysts look to another bumpy quarter for oilfield services majors in Q4'19

Analysts anticipate oilfield services majors will have exited 2019 with a whimper as prudent spending by exploration and production companies capped earnings potential, particularly in the U.S. land markets.

Schlumberger Ltd. on Jan. 17 will be the first of the oilfield services majors to report fourth-quarter 2019 and full-year 2019 earnings, followed by Halliburton Co. on Jan. 21, Baker Hughes Co. on Jan. 22 and National Oilwell Varco Inc. on Feb. 7.

Outlooks for the industry bellwether point to a disappointing end to a discouraging year, while 2020 promises modest improvement.

Credit Suisse lowered its fourth-quarter 2019 earnings estimate for Schlumberger from 37 cents per share to 36 cents per share. The revision reflects weaker fourth-quarter 2019 results in production and drilling, steady results for reservoir characterization and slightly stronger results than previously anticipated for Cameron International Corp., analyst Jacob Lundberg said. The outlook is below the S&P Global Market Intelligence consensus estimate of 37 cents per share.

As U.S. shale operators cut full-year 2019 investment by an estimated 6% year on year, oilfield services companies found less work and reduced pricing leverage, Rystad Energy said in December 2019.

However, 2020 promises to be a slightly better year for Schlumberger as the world's largest oilfield services company institutes a new strategic game plan for the North American land market. CEO Olivier Le Peuch, who took the helm in August 2019, is expected to offer more about the company's new strategy during the upcoming earnings call, Tudor Pickering Holt & Co. analysts said.

In November 2019, Tudor Pickering Holt upgraded Schlumberger's stock to a buy rating after downgrading the stock to sell in April of that year, basing the revised outlook on a sustainable dividend and a "new (and logical) strategy" outlined by Le Peuch.

Under the leadership of Le Peuch, Tudor Pickering Holt sees an attractive risk/reward for the industry bellwether as the CEO undertakes a sweeping review of the company's portfolio. The company is likely to "prune some returns-dilutive businesses in 2020, and investors [will] get paid a palatable [approximate] 6% dividend yield while waiting on the execution of the new strategic vision," the analysts said.

Tudor Pickering Holt expects 2020 EBITDA of $6.5 billion if the company executes the new strategy well. Credit Suisse also expects 2020 EBITDA of $6.5 billion.

Two-thirds of Schlumberger's revenues stem from its international markets. If Brent oil prices hold in the high $60s per barrel, the company's international growth in 2020 and beyond could be "sneaky strong," Tudor Pickering Holt said.

Companies that are more heavily exposed to the North America land market, such as Halliburton, could face fiercer headwinds as the Houston-based equipment and services provider spent the second half of 2019 shuttering facilities and laying off workers, which could signal that the company expects U.S. activity to remain constrained, Rystad said.

Credit Suisse lowered its fourth-quarter 2019 earnings estimate for Halliburton to 29 cents per share from 30 cents per share, flat to the S&P Global Market Intelligence consensus estimate and below BMO Capital Markets Corp.'s fourth-quarter 2019 earnings outlook of 31 cents per share.

BMO sees full-year 2019 earnings of $1.21 per share, flat to the Market Intelligence consensus estimate.

For Houston-based Baker Hughes, Credit Suisse held its fourth-quarter 2019 earnings estimate at 31 cents per share and adjusted its first-quarter 2020 estimate to 22 cents per share from 25 cents per share. The S&P Global Market Intelligence consensus estimates points to 32 cents per share for the fourth-quarter 2019 and 23 cents per share for the 2020 first quarter.

An increase in the tax rate from 23% to 28% and lower margins for its turbomachinery & process solutions segment from 13.6% to 10.5%, support the revision, Lundberg said. "Importantly, despite the lower [first quarter 2020] estimate, our [full-year 2020] EBITDA estimate is relatively unchanged at $3.46 billion, he said. The full-year 2020 earnings per share estimate, down 8 cents to $1.30 per share, is driven by the higher assumed book tax rate," Lundberg said.

Favoring Baker Hughes, BMO said: "We believe [Baker Hughes] offers one of the safest outlooks in [oilfield services] given backlog supported growth in [turbomachinery & process solutions] (LNG) and only 13% of revenue exposed to weak U.S. drilling and completion activity."

For oil and gas equipment and services provider National Oilwell Varco, S&P Global Market Intelligence fourth-quarter 2019 and 2020-first-quarter consensus estimates are lower consecutively. From third-quarter 2019's 18 cents per share, fourth-quarter 2019 earnings are forecast to drop to 17 cents per share and sink to 16 cents per share in the 2020 first quarter.

Credit Suisse held National Oilwell Varco's fourth-quarter 2019 EBITDA estimate steady at $228 million and adjusted its first-quarter 2020 estimate to $186 million, from $171 million.

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