Here's How to Play Core Labs Stock Ahead of Its Q1 Earnings Release

Core Laboratories Inc. CLB, a global oilfield services provider with operations in more than 50 countries and a focus on reservoir management and production optimization, has experienced a significant decline in its share price, which fell 33.7% over the past three months. This drop is steeper than the broader oil and energy sector and the Field Services sub-industry's decline of 14.5% and 20.3%, respectively. CLB has also underperformed its key peers. Shares of TechnipFMC FTI, Halliburton HAL and RPC, Inc. RES have lost 22.3%, 24.2% and 24.5%, respectively. 

Analyzing 3-Month Stock Performance

Q1 Estimates for CLB Stock

Core Laboratories is set to release first-quarter earnings on April 23 after the closing bell. The Zacks Consensus Estimate for the to-be-reported quarter's earnings is pegged at 15 cents per share on revenues of $124.06 million. The estimated figure indicates a 34.8% year-over-year bottom-line decline. The Zacks Consensus Estimate for revenues implies a deterioration of 4.30% from the year-ago period.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

With such a sharp fall in share price, investors are left asking, is this an opportunity to buy at a discount or a signal to avoid the stock altogether?

Key Factors Behind the Decline of CLB’s Share Price

Disappointing Revenues in Q4: Core Laboratories’ fourth-quarter 2024 revenues were $129.2 million, down 4% sequentially from third-quarter 2024. The figure missed the Zacks Consensus Estimate of $131 million by 1.4%. The decline was mainly due to lower U.S. land drilling and completion activity, as well as disruptions from geopolitical sanctions affecting crude oil assay services.

Weakness in the Production Enhancement Segment: The Production Enhancement segment reported a 3% year-over-year revenue decline and a 7% sequential drop in fourth-quarter 2024, reflecting the slowdown in U.S. onshore drilling activity. This segment continues to face pricing pressure and weaker demand for well completion products.

Lower Guidance for Q1 2025: For first-quarter 2025, Core Laboratories projects an operating margin decline to around 9%, down from 12% in fourth-quarter 2024. The guidance indicates lower earnings due to seasonal slowdowns, weak U.S. onshore activity and potential geopolitical risks, which may weigh on investor sentiment.

Minimal Dividend Yield: Despite solid free cash flow, CLB’s quarterly dividend remains at 1 cent per share, offering a very low yield compared with TechnipFMC, Halliburton and RPC. While management focuses on debt reduction and share repurchases, the low dividend payout may deter income-focused investors.  

Geopolitical Risks Affecting Revenues: Expanded U.S. sanctions in early 2025 have affected crude assay laboratory services and product sales, particularly in key international markets. These disruptions negatively impact Reservoir Description revenues and could persist if sanctions continue to tighten.

Slow U.S. Oil & Gas Production Growth: The U.S. Energy Information Administration projects only a modest increase in U.S. oil production from 13.2 million barrels per day in 2024 to 13.5 million barrels per day in 2025. With flat to slightly down drilling activity in the United States, CLB’s Production Enhancement business may struggle to recover lost revenues.

Inventory and Supply-Chain Challenges: Although Core Laboratories has improved inventory efficiency, a 9% sequential decline in inventory levels in fourth-quarter 2024 indicates potential supply-chain challenges. If demand picks up unexpectedly, the company may struggle to meet orders, potentially impacting revenues and customer satisfaction.

Increased CapEx Could Impact Free Cash Flow in 2025: While free cash flow was strong in 2024, higher planned capital expenditures (CapEx) in 2025, including rebuilding the Aberdeen facility after a fire, could temporarily reduce available cash for shareholder returns and debt reduction.

Concerns Over Valuation: Core’s EV/EBITDA ratio is 8.26, which is considerably higher than the Oil and Gas Field Services industry average of 5.62. This suggests that the stock may be overvalued compared with competitors like TechnipFMC, Halliburton and RPC. If CLB’s earnings fail to meet expectations in the coming quarters, the stock could experience a significant correction.

Summing Up: Avoid CLB Stock for Now

This Zacks Rank #4 (Sell) company is facing a mix of internal challenges and external pressures. Declining revenues, shrinking margins, weak demand in key segments and geopolitical disruptions are all weighing heavily on its performance. Additionally, concerns about the company's high valuation compared with industry peers raise doubts about its current price sustainability. With minimal dividend returns and rising capital expenditures, the short-term outlook remains uncertain. Until the company demonstrates stronger financial performance and operational stability, it is advisable to look elsewhere for opportunities in the oil and gas sector.  

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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