On May 24, Zacks Investment Research downgraded oilfield
services provider -
) - to a Zacks Rank #3 (Hold).
BP PLC (BP): Free Stock Analysis Report
GEOPHYSIQUE-ADR (CGG): Free Stock Analysis
EXTERRAN HLDGS (EXH): Free Stock Analysis
HALLIBURTON CO (HAL): Free Stock Analysis
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Why the Downgrade?
Halliburton has operations in over 70 countries, with
approximately 40% of its total operating income coming from
international markets. As such, the company is exposed to risks
associated with doing business abroad, which include embargoes
and/or expropriation of assets, exchange rate risks, terrorism
and political/civil sentiment, etc.
Moreover, we remain concerned over the ensuing uncertainty
regarding Halliburton's potential liability exposure to the
Deepwater Horizon rig disaster. A final assessment report issued
by the federal government in Sep 2011 blamed the company for the
'poor cement job' that allowed the oil/gas to burst through the
reservoir and reach the rig, causing the explosion. We believe
that this has raised the probability for Halliburton to share at
least a portion of the spill liabilities with British energy
Additionally, the new environmental regulations for hydraulic
fracturing (or fracking) in the shale plays could adversely
impact the company, as it will force Halliburton to reveal the
structure of its fluids. In all likelihood, this will also wipe
out its competitive advantage in the high-end pressure-pumping
Moreover, the North American land rig count may remain flat in
the near future as growth in the highly-productive horizontal
drilling has led to a natural gas supply overhang and relatively
weak natural gas prices in the U.S. Hence, we believe that a
slowdown in U.S. land drilling will impair Halliburton's
Stocks to Consider
In the oil field services sector, two firms that are expected to
significantly outperform the broader U.S. equity market over the
next one-to-three months are
Exterran Holdings Inc.
). Both the firms currently retain a Zacks Rank #1 (Strong