Schlumberger: From Russia With Love

Schlumberger (SLB) has become the latest company to say that it will get hit by Russian sanctions on U.S. companies today.

Sterne Agee’s Stephen Gengaro and Ivan Suleiman assess the potential impact:

Schlumberger expects that the economic sanctions in Russia will have a small financial impact on Schlumberger’s Russian operations. The company estimates that it could be up to $0.03 per share due to a short-term impact in operational efficiencies and costs in Russia.

Schlumberger remains confident that it can support its Russian clients without material disruption and will continue to work closely with its Russian customers.

Although other large-cap service companies have exposure to Russia, we believe the effect is also minimal. Specifically, Weatherford (WFT) has noted that the Russian sanctions are not a concern as this is a very small portion of its business. In addition, this business is not impacted by the sanctions which are against Arctic and shale-related technologies. We estimate that Weatherford’s revenue in Russia is less than 3% of our estimated 2014 revenue.

Other companies with large exposure to Russia include Nabors Industries (NBR), Halliburton (HAL) and Baker Hughes (BHI).

RBC’s Kurt Hallead and Robert Pinkard use the occasion to assess the potential impact on Schlumberger from Iraq instability:

We estimate roughly $600mn in annual Iraq revenue ($0.06-$0.08 in EPS) for Schlumberger with operating margins of ~20%. The situation due to political unrest is still very fluid in the country and EPS impact at this point is unknown.

We are risk adjusting the next 6 quarters which we believe could be characterized by activity disruptions, higher security expenses and unabsorbed fixed costs.

Hallead and Pinkard lowered their 2014 earnings-per share forecast to $5.56 from $5.64, and cut their 2015 prediction to $6.63 from $6.70. They did, however, leave their price target at $129.

Shares of Schlumberger have fallen 1.3% to $107.75 at 2:56 p.m. today, while Weatherford has dropped 1.4% to $21.72, Nabors Industries has declined 1% to $26.58, Halliburton has slipped 0.7% to $68.95 and Baker Hughes is off 0.6% at $68.20.