We reaffirmed our Neutral recommendation on
Weatherford International Ltd.
) on Jun 24, 2013, based on its leading position in the global
oilfield services market along with its broad and technologically
complex product/service offerings. However, Weatherford's debt
heavy balance sheet and weak ability to generate free cash temper
our outlook to some extent. The company holds a Zacks Rank #3,
which is equivalent to a short-term Hold rating.
We believe that Weatherford's medium-term revenue growth will
outpace peers, given its recovering margins and growing presence
in the relatively stable market of the Eastern Hemisphere. We
also remain optimistic about the company's performance in North
America, given its exposure to the prolific oil and gas shales
and improved pricing across several product lines. With respect
to 2013, the company maintained a positive outlook for its North
Weatherford believes that the depressed natural gas environment
will likely be overshadowed by the predominance of oil activity
in Canada and the U.S. Weatherford expects its earnings per share
to improve considerably in 2013 and 2014. The company's
international businesses are likely to be the key growth drivers,
with Mexico, Russia, China, Australia and Saudi Arabia leading
the way. In 2013, the annual effective tax rate is expected to be
about 34% compared with 92% at the end of 2012.
With respect to 2013, the company maintained a neutral outlook
for its North American business and expects moderate growth in
revenue and operating income. Weatherford foresees sustained
growth and expanding margins in its Latin America region,
supported by improvements in Argentina and Mexico. The company
also expects improvements in the Eastern Hemisphere in 2013, with
an upside in Europe, Sub-Saharan Africa and Russia, as well as
stronger activity levels in the Middle East, North Africa and
On the flip side, Weatherford's debt-heavy balance sheet, its
weak incapability to generate strong free cash flow as well as
competition from larger peers is a cause for concern. The
company's debt-to-capitalization ratio is 45.0%, significantly
higher than its peer group average (29.6%).
Other Stocks to Consider
While we prefer to remain on the sidelines for Weatherford, there
are other stocks in the sector that appear more attractive. These
include Zacks Rank #1 (Strong Buy) stocks
Oasis Petroleum Inc.
Sanchez Energy Corporation
Hornbeck Offshore Services, Inc.
HORNBECK OFFSHR (HOS): Free Stock Analysis
OASIS PETROLEUM (OAS): Free Stock Analysis
SANCHEZ ENERGY (SN): Free Stock Analysis
WEATHERFORD INT (WFT): Free Stock Analysis
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