On Jan 16, 2014, we retained our Neutral recommendation on the
Houston, TX-based oilfield services behemoth
). Our investment thesis is supported by a Zacks Rank #3 (Hold).
Why the Reiteration?
The company has been benefiting from higher activity in the
international markets, which has more than made up for sluggish
North American operations. In fact, Halliburton expects the
strong demand trend for its services in international markets to
continue in the coming years. Halliburton's inexpensive valuation
and a favorable DOJ verdict over the company's role in the
Macondo oil spill lend additional support.
Nevertheless, the increased pricing pressure in its North
American operations, oversupply in the pressure pumping business
and a sharp run-up in its stock price keeps us on the sidelines.
Halliburton - set to release its fourth quarter results on Jan 21
- is among the top three players in each of its product/service
categories, and is present in all major hydrocarbon-producing
regions of the world. The company, which has surpassed earnings
estimates in each of the last 4 quarters, enjoys very strong
relationships with both publicly-traded and national oil
companies worldwide. In particular, the sluggishness in
Halliburton's international operations continue to reflect strong
demand for its services on the back of higher activity. This is
expected to be a key growth driver going forward with pricing in
the region remaining competitive. We have identified Latin
America - offering enough shale development opportunities - as
the important market in this regard. Additionally, despite
certain issues in Halliburton's core U.S. segment, the long-term
prospects for the business remain robust.
In September, Halliburton got reprieve from the United States
Department of Justice (DOJ), when it closed its investigation
into the company's role in the Gulf of Mexico's Macondo well
disaster. We believe that the judge's acceptance of Halliburton's
guilty plea removes an overhang from the oilfield service
Finally, Halliburton's positive 'Analyst Day' update, together
with the recent increase in its quarterly dividend are other
pieces of bullish news. While the Analyst Day conveyed the
world's second-largest oilfield services firm after
) intentions to outgrow the deepwater market by 25% over the next
3 years, the payout hike highlights Halliburton's commitment to
create value for shareholders.
However, we expect the pressure pumping market - in which
Halliburton is the leader - to remain oversupplied till the
second half of 2014. This is likely to exert pressure on the
company's sales. Moreover, given the massive run-up in the stock
(1-year gain of almost 40%), we advise investors to proceed with
Stocks That Warrant a Look
While we expect Halliburton to perform in line with its peers and
industry levels in the coming months and advice investors to wait
for a better entry point before accumulating shares, one can look
Emerge Energy Services L.P.
Helix Energy Solutions Group Inc.
) as good buying opportunities. Both these U.S. oilfield service
providers - sporting a Zacks Rank #2 (Buy) - have recorded solid
growth and have the potential to rise from the current
EMERGE ENRG SVC (EMES): Free Stock Analysis
HALLIBURTON CO (HAL): Free Stock Analysis
HELIX EGY SOLUT (HLX): Free Stock Analysis
SCHLUMBERGER LT (SLB): Free Stock Analysis
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