SLB Schlumberger Ltd

Ahead of Halliburton Company’s (HAL) fourth-quarter results, we are maintaining our Neutral recommendation on the oilfield services behemoth.

Houston, Texas-based Halliburton is one of the largest oilfield service providers in the world, offering a variety of equipment, maintenance and engineering and construction services to the energy, industrial and government sectors. The company operates under two main segments: Completion and Production, and Drilling and Evaluation.

Halliburton recently reported in-line September quarter results, as higher activity in the international markets was offset by cost inflation. The company’s earnings per share from continuing operations (excluding special items) came in at 67 cents, matching the Zacks Consensus Estimate.

However, per share adjusted profits came sharply lower than the third quarter 2011 level of 94 cents (excluding an asset impairment charge) amid sluggish activity in its core North American operations. In particular, Halliburton continues to be plagued by a host of issues in this region, including a spike in the costs for guar gums, and Hurricane Isaac-related shutdowns.

However, the world's second-largest oilfield services firm after Schlumberger Limited (SLB) is enjoying strong demand for its services in international markets and expects the trend to continue in the coming years. We have identified Latin America – offering enough shale development opportunities – as the important market in this regard.

Additionally, the company, which is scheduled to report fourth quarter and year-end 2012 results on January 25, remains in excellent financial health with some $2.0 billion in cash and a debt-to-capitalization ratio of around 24%. This helps Halliburton to capitalize on investment opportunities and offers options to make strategic acquisitions, thereby further improving growth visibility. Halliburton’s inexpensive valuation provides further support.

Considering these factors, we see the shares of Halliburton performing in line with the broader market. Our long-term Neutral recommendation is supported by a Zacks #3 Rank (short-term Hold rating).

 
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