Schlumberger (NYSE:SLB) stock has been moving higher on warming analysts' sentiment, and that sentiment is coming to a boil. There have been at least five upgrades or price target increases since Mar. 31, and we don’t see this trend ending.
The incredible surge in oil prices is going to drive record/windfall profits in the energy sector, and some of that cash is going to get reinvested in technology improvements, new wells, and other services provided by Schlumberger.
The most recent activity is a pair of commentaries that includes a double upgrade from Neutral to Overweight by Piper Sandler. Piper Sandler pegs the stock price at $55, up from $43, and this compares well to the $44.95 Marketbeat.com consensus price target.
The other commentary comes from Morgan Stanley which maintained an Overweight rating while upping the price target to $50. These upgrades, along with a string of price target increases over the past month, have the Marketbeat.com consensus up versus last year, three months, and one month ago.
{0|Goldman Sachs}}, which upped its rating to Conviction Buy from Buy in late March, turned the stock up on one of its screens this week as well. The screen was for pricing power and margin strength and suggests Schlumberger will be one of the better earnings stories this quarter, and the energy sector will be flush with good news. Morgan Stanley (NYSE:MS), coincidentally, issued its price target upgrade on an expectation for higher margins and increased demand for services.
Institutional Holdings Of Schlumberger Are On The Rise
Institutional holdings and the trend in ownership are also supporting price action in Schlumberger. While the activity has been vigorous on both sides of the equation, the net of activity over the last year is bullish, and the Q1 activity, in particular very bullish. Institutional activity in Q1 netted $2 billion worth of the stock, equal to about 3.35% of the market cap, and brings total holdings up 75%.
Turning to the earnings, the outlook for earnings has tightened to a narrower range than we’ve seen over the past few years due to increased visibility for the business. The company is expected to post $5.93 billion for Q1, up almost 15% from last year, and we see upside risk in the numbers and the guidance. The analysts expect to see earnings trend higher over the next six quarters, and those estimates are on the rise.
There Is A Big Dividend Increase In Store For Schlumberger
Schlumberger cut its dividend in the wake of the pandemic to maintain cash and balance sheet health. Those efforts have paid off over the past two years, so now, with earnings and revenue growing and business expected to boom, we see the dividend getting raised back to its pre-COVID level in one or more increases.
The current payout is only 26% of the pre-COVID payout, so we discuss a significant increase and catalyst for share prices. The dividend yields about 1.2% at the current rate.
The Technical Outlook: Schlumberger Is Reversing
Price action in Schlumberger has been in a downtrend for many years due to declining demand for oilfield services. However, that trend has come to an end, and a reversal is in the works. With price action now above the $33 level and gaining momentum, we see a move up to the $60 level coming next. Schlumberger next reports earnings on Apr. 22.
