SLB raises revenue outlook but faces margin pressure from data center expansion
Middle East operations have yet to return to prior-year levels, but SLB still expects its core oilfield services businesses to outperform the industry in 2027. JPMorgan raised its revenue forecast and lowered its EBITDA forecast, with the expansion of the lower-margin data center business a key factor.
Original source：J.P. MorganFirst published on Unhidea：Original source date：
Key takeaway
The growth outlook for SLB’s core oilfield services businesses has improved, but a rising share of data center business and project start-up costs led JPMorgan to raise its 2027 revenue forecast while lowering its earnings forecast.
Why does SLB remain optimistic about 2027 when the Middle East has yet to recover?
SLB expects global upstream spending to grow by a mid-single-digit percentage year over year in 2027, assuming Middle East revenue remains at its level in the second half of 2026 and the regional security situation does not escalate further. The company expects growth in its three core businesses—production systems, well construction and reservoir performance—to significantly exceed that rate.
Deepwater projects, exploration and production spending, and the resumption of drilling and completion activity in Venezuela underpin the company’s expectation that its core businesses will outperform the industry. SLB expects Venezuela revenue to more than double year over year in 2026, with significant further growth potential in 2027.
JPMorgan believes the company’s outlook for its businesses implies approximately 40 billion to 40.5 billion dollars in revenue for 2027, broadly in line with the bank’s previous forecast of 40.2 billion dollars and the market consensus of 40.1 billion dollars. This excludes the pending acquisition of Kelvion.
How solid is the fourth-quarter recovery?
SLB’s third-quarter revenue was 9.449 billion dollars, up approximately 5% sequentially. Middle East revenue was approximately 1.9 billion dollars, up 13% sequentially but still down 12% year over year. Management said local operations were disrupted again at the end of the quarter.
The company expects total fourth-quarter revenue to rise 5% to 7% sequentially and its adjusted EBITDA margin to improve by 1 to 1.5 percentage points. Production systems will be supported by year-end product sales, while the digital business will see a seasonal rebound.
The guidance assumes fourth-quarter Middle East revenue remains flat sequentially at approximately 1.9 billion dollars, equivalent to only about 83% of the level in the same period of 2025. The company’s earlier second-half guidance had expected that proportion to recover to approximately 95%.
Why was the revenue forecast raised while the earnings forecast was lowered?
JPMorgan raised its 2027 revenue forecast from 39.62 billion to 40.21 billion dollars, while lowering its adjusted EBITDA forecast from 9.31 billion to 9.03 billion dollars.
The main reason is expansion of the data center solutions business. The bank expects its revenue to increase from approximately 800 million dollars in 2026 to approximately 1.6 billion dollars in 2027, but its margin is approximately 15%, below those of the core oilfield services and digital businesses. Start-up costs for new projects in Canada and Asia will also create pressure.
SLB’s third-quarter data center revenue was 230 million dollars, up 23% sequentially and 76% year over year. Ramp-up costs for new projects reduced pretax profit in the “Other” segment from 142 million dollars in the second quarter to 136 million dollars. The company targets an annualized revenue run rate of 1 billion dollars by the end of 2026 and 2 billion dollars by the end of 2027; this differs from full-year revenue.
JPMorgan still expects the group’s adjusted EBITDA margin to rise to 22.5% in 2027, above its forecast of 21.7% for 2026. Management identified operating leverage in the Middle East, easing inflationary pressure and an improved digital business mix as potential supporting factors.
Which orders and cash flow conditions warrant attention?
Deepwater business orders support growth: management expects OneSubsea’s orders in 2026–2027 to exceed its 9 billion dollar target. New orders for Mozambique’s Rovuma project help extend revenue visibility.
SLB plans to acquire Kelvion for 3.4 billion dollars in cash and the assumption of approximately 700 million dollars in debt, adding data center thermal management products. The deal is expected to close in the first half of 2027; JPMorgan has not yet included it in its forecasts.
Third-quarter free cash flow was 828 million dollars, and net debt rose from 8.73 billion dollars at the end of the second quarter to 9.25 billion dollars, partly in connection with software acquisitions. The company expects lower inventories and receivables collections to boost fourth-quarter free cash flow, but the increase depends on the timing of collections in the Middle East.
JPMorgan maintained its “Overweight” rating on SLB and set a December 2027 price target of 62 dollars. Its valuation uses approximately 11 times normalized EBITDA.
