Halliburton Stays Neutral Post-3Q - Analyst Blog

We retain our Neutral recommendation on Halliburton Company (HAL), following the impressive third quarter 2010 results, driven by an increased activity in the unconventional oil and gas shale plays in North America that counterbalanced a flat international performance.

Third Quarter Recap

During the quarter, Halliburton reported earnings per share, excluding special items, of 58 cents, surpassing the Zacks Consensus Estimate of 56 cents and were comfortably ahead of the year-ago adjusted profit of 31 cents.

The company generated revenues of $4.7 billion, a year-over-year growth of 30.0%, attributed to increased sales across all business units. Revenues in the Completion and Production segment leaped 45.8% year over year to $2.7 billion, while Drilling and Evaluation business sales upped 13.8% year over year to $2.0 billion.

As of September 30, 2010, Halliburton had approximately $1.9 billion in cash and $4.6 billion in long-term debt (including current maturities), representing a debt-to-capitalization ratio of 31.7%.

Our Take

Texas-based Halliburton holds a market leading position in the global oilfield services industry, boosted by its broad and technologically-complex product and service offerings and a healthy financial profile. We expect the company's widespread geographical presence along with the success in international arenas to expand its market share, going forward.

The company is enjoying the benefits of an active North American market along with higher activity in U.S. land drilling, U.K., and Southeast Asia. We expect Halliburton to continue to reap benefits from the U.S.land drilling trends, where activity is tracking above expectations.

However, our optimism for the stock is somewhat dampened by the new environmental regulations for hydraulic fracturing in the shale plays, which could adversely impact the company's performance in the coming months.

Moreover, the intensely competitive nature of the oil and gas industry, depressed natural gas prices and the risks associated with international operations will continue to remain a overhang on the stock.