Friday, May 21, 2010

Earnings Scorecard: Halliburton

By: Zacks Equity Research

Last month, Halliburton Co. (HAL - Analyst Report) – one of the largest oilfield service providers in the world – announced its financial results for the first quarter ended March 31, 2010.

Now that the Wall Street analysts have had some time to digest the quarterly performance of Halliburton, 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 outlook for the stock.

Earnings Review

On April 19, 2010, Halliburton reported earnings per share from continuing operations (excluding the impact of Venezuela devaluation) of 28 cents, 3 cents above the Zacks Consensus Estimate. The better-than-expected results were mainly driven by strengthening activity in North America, partly offset by weak demand across Latin America.

However, compared with the year-earlier quarter, Halliburton’s adjusted earnings per share was down more than 36% while revenue fell 4% to $3.8 billion, hurt by the still-weak natural gas fundamentals in the North American region to which the company is heavily exposed through its market share leading pressure-pumping business. During the quarter, North America accounted for approximately 45% of Halliburton’s total revenue as well as its operating income.

(Read our full coverage on this earnings report: Halliburton Ahead of Projections)

Agreement of Estimate Revisions

The following table reflects a strong positive agreement among the analysts regarding Halliburton’s outlook. In particular, we see a notable number of estimate revisions over the past 30 days.

Out of 31 analysts covering the stock, 10 have revised upwards their estimates for 2010, while 3 have gone in the opposite direction. Looking forward to 2011, the trend is more or less similar. Out of 29 analysts, 8 improved upon their estimates while just 3 had negative revisions.

Estimates are up for the June and September quarters of 2010 as well. For the current quarter, 10 of the 27 analysts have increased their estimates over the last 30 days, as compared to only 2 negative revisions. Third quarter estimates have also been revised upwards by 8 analysts (out of a total of 27) with 4 downward revisions in the last 30 days.

This impressive trend in estimate revisions promises a consistent stream of earnings, buoyed by a strong first quarter performance in tandem with more favorable operating scenario for the remainder of 2010 and beyond.

However, the last 7 days have not seen any estimate changes (as clear from the table below), indicating that the revisions were in response to the company’s earnings announcement and the encouraging news from the Congressional hearings last week that absolved Halliburton of the liability in the huge oil spill accident in the Gulf of Mexico.

As a reminder, on April 20, offshore driller Transocean’s (RIG - Analyst Report) ultra-deepwater Horizon platform, contracted to British major BP plc (BP - Analyst Report), sank following a fire and explosion while operating in the U.S. Gulf of Mexico off Louisiana’s coast. The incident killed 11 workers and caused one of the worst oil spills in U.S. history. Halliburton, which provided blowout-prevention equipment, got entangled in the incident.

Magnitude of Estimate Revisions

As a result of the analysts revising estimates over the past 30 days, the Zacks Consensus Estimates for fiscal 2010 and 2011 have gone up 3 cents (from $1.44 to $1.47) and 2 cents (from $2.13 to $2.15), respectively. Meanwhile, estimates for both the June and September 2010 quarters are up by a penny. The increases are based on the strengthening North American markets, steady international growth expectations, and rebounding activity levels.

Our Recommendation

Despite the robust first quarter results and the strong outlook, our short-term as well as long-term recommendations on Halliburton remain Hold (Zacks Rank #3) and Neutral, respectively.

We like Halliburton’s leading position in the global oilfield services market, its geographic and operational diversity, and its robust financial profile. The company, with its broad and technologically complex product and service offerings, enjoys a strong competitive profile.

During the first quarter earnings release, Halliburton management indicated that the North American markets continue to strengthen. Land activity in the U.S. increased, as energy operators persisted with the development of unconventional reservoirs and firm oil prices led to an increase in oil-related drilling activity.

Natural gas fundamentals, however, still remain weak. The continued glut in domestic gas supplies, the end of the three-month cold snap (from December 2009 through February 2010), as well as the rapid rise in the natural gas rig count, has re-fueled investor skepticism about natural gas prices.

Within the oilfield services group, we are positive on London-based Acergy S.A. (ACGY - Analyst Report). With a healthy backlog, significant cash balances, and no near-term refinancing requirements, Acergy should weather the challenging business environment. Our favorable recommendation on Acergy ADRs also reflects the company’s strong leverage to the still very favorable outlook for deepwater oilfield activities and the quality of its client base, which mostly includes well-capitalized oil majors or national oil companies. This is supported by our short-term as well as long-term recommendations of Strong Buy (Zacks Rank #1) and Outperform, respectively.

About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at

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