Halliburton Has Strong Position In Oil But Overexposed In Natural Gas

Halliburton (HAL) enjoys a strong competitive position in the global oilfield services market. We like the company’s broad and technologically complex product and service offerings, along with its robust financial profile. Halliburton is among the top three players in each of its product/service category and is present in all major hydrocarbon-producing regions of the world.

The company has a strong international oilfield presence, with the oil-rich Eastern Hemisphere becoming its fastest growing segment. In fact, this region contributed largely to Halliburton’s better-than-expected second-quarter profit of 30 cents per share (above the Zacks Consensus Estimate of 27 cents). Its international operations have held up reasonably well in the downturn and are expected to provide some cushion to the company’s near-to-medium-term performance.

However, Halliburton’s overexposure to domestic natural gas prices remains a cause for concern. Being a global leader in the vital oilfield service, the company remains more vulnerable to the travails of pressure pumping than its large-cap diversified peers like Baker Hughes (BHI) and Schlumberger (SLB). These factors, especially the sharp cyclical downturn in the all-important North American market, weighed heavily on Halliburton’s second-quarter results and dragged them much below the year-ago levels.

We believe this trend will continue to hurt the company’s revenue and profitability in the next few quarters. As such, we see the stock performing in line with the broader market and rate it as Neutral.

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