Schlumberger (SLB) Implied Move Suggest Upside Post Earnings

We are facing a slowdown in the oil markets despite there are 2 conflicts in geopolitical, Schlumberger's business could continue to benefit from investments offshore and in international markets. Economic weakness in Europe and China, along with an end to OPEC supply cuts, pose threats to Schlumberger's business though. Schlumberger appears fairly valued given near-term risks but should do well if economic conditions remain resilient.

SLB has issued earnings guidance for FY 2022. Revenue is estimated at 27.0 B, which would be a 18% increase from the prior year.

Based on the past implied straddle and price effect, we would need to be looking at implied straddle above 3.3% so that we could see a positive price effect.

SLB last reported earnings on 20 Oct 2023 before the market opened (BMO). SLB shares declined -2.9% the day following the earnings announcement to close at 57.93. Following its earnings release, 90 days ago, SLB stock has drifted -16.2% lower.

From the time it announced earnings, SLB traded in a range between 47.17 and 58.77. The last price (48.56) is closer to the lower end of range.

SLB share price has drifted down -16.2% post earnings announcement. Using the last 12 quarters data, the average drift between earnings announcements is 13.3%. The current drift represents a negative -0.8 standard deviation move.

Current post earnings announcement drift: -16.2%

Historical average post earnings announcement drift: 13.3%

Historical post earnings drift standard deviation move: ±20.2%

The options market overestimated SLB stocks earnings move 67% of the time in the last 12 quarters. The predicted move after earnings announcement was ±3.5% on average vs an average of the actual earnings moves of 2.8% (in absolute terms).

SLB's last earnings implied volatility (IV30) going into earnings was 36.4. The last time SLB released earnings, the implied volatility dropped to 35.7, resulting in an implied vol crush of 2%. 5 days after earnings, the 30 day IV was 34.6.

Average Implied Volatility Crush For SLB Earnings: 5%

Average 30 Day Implied Volatility 1 Day Before Earnings: 41.4

Average SLB 30 Day IV for the Day of Earnings: 40.5

Average 30 Day Implied Volatility 5 Days After Earnings: 41.3

SLB implied volatility (IV) is 31.2, which is in the 33% percentile rank. This means that 33% of the time the IV was lower in the last year than the current level. The current IV (31.2) is -1.2% below its 20 day moving average (31.6) indicating implied volatility is trending lower.

The current IV (31.2) in SLB is 1.3% above its 20 day HV (30.8) suggesting that options markets are predicting future volatility to trade above the most recent 20 day realized volatility.

SLB last actual move on 18 Jan is within the implied move range and with option valuation overvalued, this suggest that investors are pricing in upside for this stock.

SLB could be in a good position to overcome their near-term risks if economic conditions remains resilient, and it is fairly valued, this would make this stock a potential Buy.

I am expecting upside after its earnings announcement, there might be potential trade in the pre-market.

Appreciate if you could share your thoughts in the comment section whether you think SLB would give an upside given they might benefit from their offshore investment despite a slowdown in the oil market, even though we have the red sea and israel-hamas conflict.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.