SLB’s Perspective in Q2: KEY Takeaways

SLB delivered a solid Q2 with stable revenue and margin expansion, driven by international growth and strong performance in digital and production systems. The ChampionX acquisition enhances SLB’s while synergies from the acquisition can support long-term growth and integration across the production lifecycle. Despite tariff headwinds, SLB projects flat EBITDA margins and stronger free cash flow in the 2H 2025.

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The Market Outlook

We have already discussed SLB's (SLB) Q2 2025 financial performance in our recent article . Here is an outline of the macro energy environment and the company’s strategies in a changing scenario. The oil and gas sector has remained resilient in 1H 2025, with steady upstream spending despite global uncertainties. However, SLB’s management sees a divergent growth outlook.

Asia and the Middle East remain the most resilient regions due to energy security priorities and cost advantages. Offshore projects across Europe, Africa, and the Americas provide a stable base. North and Latin American land markets, on the other hand, face downside due to short-cycle spending patterns. Globally, operators are expected to prioritize in-flight development, production efficiency, and digital/AI investments.

ChampionX Acquisition Value and Synergies

SLB completed the ChampionX acquisition in July. ChampionX strengthens SLB’s capabilities in production chemicals and artificial lift. It adds scale, vertical integration, and manufacturing reach, enabling SLB to address the increasing needs of aging and complex well infrastructure. It also extends SLB's offering into new markets and applications, accelerating its transition to a fully integrated production lifecycle service provider.

Geographically, the acquisition enhances SLB’s U.S. footprint while enabling international deployment of ChampionX’s technologies. The integration is expected to yield $400 million in annual pretax synergies within three years, of which 75% will come from supply chain and operating expense optimization. The remaining synergies come from G&A efficiencies. SLB also expects $100 million in incremental revenue synergies. Importantly, ChampionX has already demonstrated margin growth in prior quarters, reinforcing SLB’s resilient margin outlook.

SLB's Guidance

SLB projects 2H 2025 revenue to increase by 8.6% (at the guidance mid-point), driven by the ChampionX contribution and steady performance from SLB's legacy businesses. Production Systems and Digital will offset activity declines in U.S. land and some deepwater markets. Adjusted EBITDA margins are expected to remain flat with Q2 levels, including both ChampionX’s contribution and tariff headwinds.

SLB's Q2 Performance Drivers

Our short article discussed SLB's revenue drivers for the operating divisions and key geographic regions. Overall, the company's adjusted EBITDA increased by 1.5% in Q2’25 compared to Q1’25. Geographically, the company's sales from international businesses fared better than those in North America in Q2.

SLB's cash flow from operations was steady in Q2 2025 compared to a year ago, despite revenues dropping by 5% during this period. Its FCF, however, increased by 15% due to lower capex. Due to the lower shareholders’ equity, debt-to-equity increased (0.64x) compared to 0.54x in FY2024. In June, SLB sold its working interest in the Palliser Block in Canada.

Relative Valuation

SLB is currently trading at an EV/EBITDA multiple of 7.6x. Based on sell-side analysts' EBITDA estimates, the forward EV/EBITDA multiple is 7.2x. The current multiple falls short of its five-year average EV/EBITDA multiple of 11.8x.

SLB's forward EV/EBITDA multiple versus the adjusted current EV/EBITDA is expected to contract, while the multiple is expected to remain unchanged for its peers. This is because the company's EBITDA is expected to increase while it is expected to remain unchanged for its peers in the next four quarters. This typically results in a higher EV/EBITDA multiple than its peers. The stock's EV/EBITDA multiple is lower than its peers' (HAL, BKR, and FTI) average. So, the stock is undervalued compared to its peers.

Final Commentary

SLB delivered a stable Q2 performance with steady revenue and slight margin expansion despite macro headwinds, driven by international growth in the Middle East, Asia, and North Africa. North America and offshore markets faced some softness, but strong digital and production systems sales helped offset declines. The integration of ChampionX positions SLB for long-term growth by enhancing its production chemicals, artificial lift, and digital capabilities while enabling $400 million in cost and revenue synergies over three years.

While tariffs may slightly dampen near-term margins, SLB expects flat EBITDA margins in H2 and stronger free cash flow due to improved earnings and collections. Overall, SLB remains well-positioned with resilient global demand, a growing digital portfolio, and an expanded service footprint. The stock is undervalued compared to its peers.

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