Halliburton-On the rise? Message Board

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Gold/Mining/Energy : Halliburton-On the rise?

HAL 26.84

-0.4%

Oct 31 9:30 AM EST

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From: Dennis Roth	9/21/2007 8:46:54 AM
	of 153

Moving to the positive side of Neutral - Goldman Sachs - September 21, 2007 What's changed After a period of relative underperformance, we now consider Halliburton one of our favorite Neutral-rated stocks (within the context of our Attractive coverage view). In our view, Halliburton’s strong international position is not reflected in the stock price and the company’s exposure to North American pressure pumping is over discounted. To be clear, we are not changing our cautious view of the North American pressure pumping market and continue to believe that near-term pricing will be challenged due to increasing capacity. However, Halliburton’s current discount to Schlumberger of 40% on 2008E P/E appears to be excessive. Our analysis indicates that even if Halliburton’s North American fracturing margins (operating) returned to pre-upcycle levels (we estimate 16% vs. ~26% currently) the shares would still be trading at a 30% discount to Schlumberger on P/E. Implications We believe expectations are low for North American pressure pumping and do not believe the company’s current shareholder base will be surprised by a weakening market. While we do not see a compelling catalyst or enough upside to warrant a more positive bias, we would recommend investors avoid using Halliburton shares as a source of funds or for initiating short positions. We raised our 2007E/2008E/2009E EPS to $2.42/$3.07/$3.55 from $2.40/$3.04/$3.51 after discussing the current outlook with management. Valuation Halliburton is trading at a 2008E EV-DACF/P-E of 10.4X/12.5X versus the peer average of 12.5X/15.6X and Shlumberger at 15.9X/20.7X. Our sum-of-the-parts analysis, included in this report, shows 15% upside based on current trading multiples for peers. Key risks Key risks include lower oil/gas prices and capacity additions.

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