Friday, October 22, 2010

Zacks: Haliburton a Near Term Buy?

Earlier this week, major oilfield services provider Halliburton Co. (HAL) announced its financial results for the quarter ended September 30, 2010. Now that the analysts have had some time to digest the quarterly performance, they are weighing in with their estimate revisions. Below we cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for the stock.

Earnings Review
Halliburton's better than anticipated third quarter 2010 results were helped by the strength in the all important North American onshore activity levels (to which the company is heavily exposed through its market share leading pressure pumping business). Earnings per share, excluding special items, came in at 58 cents, beating the Zacks Consensus Estimate of 56 cents and were comfortably ahead of the year ago adjusted profit of 31 cents.

Revenues of $4.7 billion, 30% above the third quarter of 2009, also surpassed the Zacks Consensus Estimate of $4.6 billion, as sales increased across the company’s business units. During the quarter, North America accounted for approximately 51% of Halliburton’s total revenues and 65% of its operating income.

Agreement of Estimate Revisions
There is a strong positive agreement among the analysts regarding Halliburton’s outlook. In particular, we see a notable number of estimate revisions over the past 7 days, indicating that the revisions were in response to the company’s third quarter earnings release. Out of 33 analysts covering the stock, 23 have revised their estimates for 2010 upward, while 5 have gone in the opposite direction. Looking forward to 2011, the trend is more or less similar. Out of 33 analysts, 22 hiked their estimates compared to just one negative revision. Estimates are up for the December quarter of 2010 as well. For the current quarter, 21 of the 29 analysts have increased their estimates over the last 7 days, against 5 downward revisions.

Magnitude of Estimate Revisions
As a result of the analysts revising estimates over the past 7 days, the Zacks Consensus Estimates for fiscal 2010 and 2011 have gone up 5 cents (from $1.94 to $1.99) and 13 cents (from $2.49 to $2.62), respectively. Meanwhile, the estimate for the December 2010 quarter is up by 3 cents. The increases are based on the expectations of bullish near-term U.S. land drilling trends, where activity is being driven by oil and liquids-rich plays. This will make the reduction in gas activity less meaningful. Halliburton will continue to be a beneficiary of the bullish rig count fundamentals in the U.S., driven by horizontal drilling in the service intensive plays.

Our Recommendation
Halliburton currently has a Zacks #2 Rank (short-term 'Buy' rating). In the near term, the company is likely to benefit from bullish U.S. land drilling trends, where activity is tracking above expectations. However, new environmental regulations for hydraulic fracturing in the shale plays, the intensely competitive nature of the market, and depressed natural gas prices will continue to overhang the stock during the longer-term, accounting for our Neutral recommendation.

Courtesy of  Zack.com


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