Following
Halliburton Company
's (
HAL
) second-quarter earnings beat and the easing costs for guar gums -
a key component in the company's market-leading 'hydraulic
fracturing' procedure - we have recalibrated our investment thesis
on the oilfield services behemoth to Neutral from Underperform.
Houston-based Halliburton recently reported better-than-anticipated
June quarter results on the back of higher activity in the
international markets. Earnings per share from continuing
operations came in at 80 cents, beating the Zacks Consensus
Estimate of 75 cents and flat year over year.
Revenues of $7.2 billion were 21.9% greater than that achieved
during the second quarter of 2011 and also surpassed the Zacks
Consensus Estimate of $6.9 billion, as sales increased across the
company's business units.
Following a tough few months, where the cost for guar gum went
through the roof in North America due to the growing use of
hydraulic fracturing in the extraction of oil and natural gas
liquids from shale, prices have now recovered. This is expected to
favorably impact the company's second half 2012 results.
Guar gum, a bean grown mostly in India, apart from being a dairy
products thickener is also a main ingredient of the hydraulic
fracturing (or fracking) process, which is used to extract natural
gas by blasting underground rock formations with a mixture of
water, sand and chemicals.
Halliburton also remains in excellent financial health with some
$2.2 billion in cash and a debt-to-capitalization ratio of around
25%. This helps the second largest member of the oilfield services
contingent after
Schlumberger Limited
(
SLB
) to capitalize on investment opportunities and offers option to
make strategic acquisitions, thereby further improving growth
visibility.
Moreover, at current multiples, which are significantly lower than
peers, we have a difficult time justifying an Underperform rating.
While being incrementally more positive on Halliburton, the
increased pricing pressure in its North American operations keeps
us on the sidelines. Our new long-term Neutral recommendation is
supported by a Zacks #3 Rank (short-term Hold rating).
HALLIBURTON CO (HAL): Free Stock Analysis
Report
SCHLUMBERGER LT (SLB): Free Stock Analysis
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