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	7/24/2007 7:49:59 AM
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North America was better than expected Goldman Sachs July 24, 2007 What's changed Adjusted EPS of $0.60 came in above our $0.54 and consensus of $0.56. Variance of $0.06 to our forecast was driven by: Production Optimization (+$0.07), Drilling and Formation Evaluation (-$0.02) and Digital and Consulting Solutions (+$0.01). We raised our 2007/2008/2009 EPS forecasts by $0.17/$0.23/$0.22 to $2.40/$2.86/$3.22. Implications (1) Halliburton reported 15% sequential revenue growth and healthy incremental margins of 40% in its Production Optimization segment driven by North American pressure pumping. Despite a slight deterioration in pressure pumping pricing, revenue reached a record level in June. We believe this was in large part due to a backlog of wells that needed to be completed. Many E&P companies delayed completions in January and February which led to a large backlog of wells that needed to be completed during 2Q. (2) The re-pricing of pressure pumping contracts in 3Q remains one of the key near-term questions. Management indicated that a further decline is likely, and we continue to expect further pricing pressure as capacity is added. (3) International growth continues to be strong. Latin American revenue grew 25% (vs. WFT: 16%; SLB: 14%) and Eastern Hemisphere revenue grew 26% (vs. WFT: 40%; SLB: 31%) over prior year periods. International growth continues to be one of our favorite themes for the group. Valuation Halliburton is trading at a 2008 EV-DACF/P-E of 10.9x/13.2x versus the peer average of 11.9x/15.9x. We raised our 12-month price target to $41 (=11.8x 2008 EV/DACF) from $39 due to higher estimates. Key risks Key risks to our thesis include: (1) A U.S./Global recession could result in weaker commodity prices and further E&P capex cuts; and (2) Weakness in natural gas prices could lead to further E&P capex cuts in North America.

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