On Apr 3, 2014, we issued an updated research report on Houston, TX-based oilfield services behemoth Halliburton Co. (HAL). While we have all along been fans of Halliburton’s strong competitive position and its broad/technologically-complex offerings, the stock has moved up sharply in recent months, with limited fundamentals support from here onwards.
Halliburton 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 enjoys very strong relationships with both publicly-traded and national oil companies worldwide.
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.
Last 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 provider’s future.
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 Schlumberger Ltd.’s (SLB) 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 55%), we advise investors to proceed with caution.
Halliburton currently carries a Zacks Rank #3 (Hold).
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 at Unit Corp. (UNT) and Willbros Group Inc. (WG) as good buying opportunities in the oilfield services space. Both carry a Zacks Rank #1 (Strong Buy).