Despite a better-than-expected earnings report, Schlumberger Corporation (NYSE:SLB) announced job cuts and is still seeing falling earnings estimates for 2015 and 2016 due to the oil price plunge. This Zacks Rank #5 (Strong Sell) is expected to see earnings contract in 2015.

Schlumberger is one of the largest energy project management companies in the world, working in 85 countries.

A Beat in Q4 But…

On Jan 15, Schlumberger reported its fourth quarter results and surprised by beating the Zacks Consensus Estimate by 3 cents. Earnings were $1.50 versus the consensus of $1.47.

Full year revenue jumped 7% to $48.6 billion. North America was strong as revenue rose 16% while International Area growth was just 4%.

It has exposure to every geopolitical event globally as well as the fall in oil prices. But the company considers its business to be diverse enough to withstand shocks in some areas, including the international sanctions in Russia and unrest in Libya and Iraq.

A a sign of strength, it raised its dividend 25% as of Apr 10, 2015 but it also said it was taking a $296 million charge for 9,000 job cuts due to the changes in oil prices.

Looking for Opportunities

Despite oil weakness, Schlumberger is thinking longer term and looking for opportunities.

On Jan 20, it announced it was acquiring a 45% stake in Russia’s Eurasia Drilling Co. Ltd. for $1.7 billion. Eurasia, which is currently trading on the London exchange, has seen its shares plunge 71% as oil has declined and the economic sanctions against Russia have tightened.

Schlumberger is paying a premium over the recent publicly traded price, at $22 a share, but this is still far below what shares were previously.

Eurasia is Russia’s largest provider of drilling services.

Estimate Cuts Lead to Zacks #5 (Strong Sell) Rank

Despite Schlumberger’s stronger-than-expected quarter, analysts are still gloomy about 2015.

The reality is that oil prices ARE down significantly and it’s going to impact earnings.

13 estimates have been cut for 2015 in just the last week pushing the 2015 Zacks Consensus down to $4.25 from $6.39 just 90 days ago.

That’s earnings contraction of 23% compared to 2014 when the company made $5.57 a share.

Because of the agreement among the analysts on the earnings cuts, the Zacks Rank has fallen to a #5 (Strong Sell).

Have Shares Hit a Bottom?

Shares peaked with oil prices in July of last year and have been falling ever since.

The earnings report seemed to set a floor. It has also helped that oil prices have, at least temporarily, found support around $45 a barrel.

But 2015 looks to be rough for the oil and gas industry. There’s no telling what will happen next which makes investing in this sector very risky.

Schlumberger is trading with a forward P/E of 19.7 which isn’t exactly cheap for a company that has seen its share price already plunge.

If you MUST buy a stock in this sector, you should consider Transocean Partners (NYSE:RIGP), an offshore drilling rig company. It’s one of the few Zacks Rank #1 (Strong Buy) stocks in the industry.

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