HAL-- Hi Mike, I don't like HAL.. I think it's too dangerous to invest in.
the asbestos liability makes investing in HAL type companies
dangerous. With so many liability claims and so many
of the companies that made asbestos, in ch 11. The
Plantiffs go after the solvent ones.
I was talking with a very sharp investor last year when
Warren Buffet bought a blcok of National Gypsum, which was
very cheap fundamentally and hey buffett is buying right.
But the company had asbestos liability exposure and sure
enough it was in ch 11 within a number of months after
The Buffett Purchase of his National Gypsum shares.
read this article.
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Asbestos Claims Make Halliburton Hazardous
By Christopher Edmonds
Special to TheStreet.com
12/10/2001 10:46 AM EST
A recent trio of asbestos-related verdicts may be enough to push Halliburton (HAL:NYSE - news - commentary - research - analysis) into a financial black hole. And, while few other oil service companies have Halliburton's potential level of exposure, the fear of costly litigation could be enough to push investors away from the sector.
Last Wednesday, a Baltimore jury verdict saddled Halliburton with $30 million in additional asbestos liability. While that alone may not seem terribly significant, as $30 million is pocket change for the company, the continued jury verdicts against the company are a real threat. Including the Baltimore case, Halliburton subsidiaries have lost three verdicts in three months, with liability pushing $125 million.
"Thirty million dollars, in the scope of things, is nothing," says Dan Pickering, director of energy research at Simmons & Co., a Houston energy investment firm, and a member of the TSC Energy Roundtable. "It's the data point and what it means that people are reacting to."
Halliburton shares lost 43% of their value Friday to close at $12, as news of the Baltimore verdict made the rounds.
Halliburton Slumps
The stock slips on news of the verdict
Asbestos litigation has already forced 25 U.S. companies into bankruptcy. More than 140,000 lawsuits have been filed, and surveys suggest the rate of filings will continue to increase for the next decade. Halliburton faces hundreds of thousands of claims with no way to estimate how many could potentially go to trial.
With such uncertainty and potential liability ahead, some argue predicting the future of Halliburton's shares is next to impossible. "There is too much uncertainty for a correct valuation to be determined," says Jim Wicklund, oil field services analyst at Banc of America Securities.
Halliburton maintains that the trial courts erred, and the company remains confident it will win on appeal. Management continues to say Halliburton's asbestos liability is under control. In fact, in an early Monday conference call, Halliburton management attempted to soothe nerves by reassuring investors that liquidity was not a problem and that they remain unconcerned about large out-of-pocket payments from asbestos liability. But most pundits say that's crazy talk.
"This is the scenario we worried about," says Pickering. "The company goes and says everything will be OK, and the Street sucks it up. And then the other shoe drops."
If the history of other companies burdened with such liability is any guide, even an asbestos jacket couldn't keep Halliburton from going up in flames if liability continues to mount.
"These verdicts will continue to pile up, and they could water-torture this company to death," says Bryan Dutt, principal and portfolio manager at Ironman Energy Capital and a member of the TSC Energy Roundtable. "Fair or not, the only reasonable conclusion is Chapter 11."
Fire and Rain
Even some fervent Halliburton bulls have turned pessimistic in the wake of last week's Baltimore verdict. UBS Warburg analyst James Stone, who earlier this year dismissed the asbestos threat as a mere irritant, lowered his rating on the stock Friday from strong buy to hold, citing asbestos liability as a significant threat to the company.
"If only 1% of cases resulted in jury verdicts of a similar magnitude and the awards were upheld at the appellate level, the future liability would be much greater than our previous expectations," Stone told clients Friday. If liability increases in that fashion, it "could cause the company to significantly increase its provisions and perhaps strain its future liquidity."
As Halliburton management attempted to soothe nerves on Monday morning's conference call, the stock may partially recover from Friday's drubbing. For most analysts, that would be a chance to further reduce positions. "If you look at other companies that have faced a similar asbestos situation, you don't see a sustained rebound," says Pickering. "The stock could easily be 10% to 20% lower from here without other news. And the next verdict will make it even worse."
Some still argue that Halliburton's core oil service business continues to lead the industry. While that may be true, it now seems irrelevant.
"This shackles Halliburton and its solid core business," says Pickering. "Right now, the direction of the business doesn't matter. The market has put a tight collar around the company's neck."
That suggests Halliburton isn't a place to play in the oil patch. "While the stock heavily discounts Halliburton's asbestos exposure, the specter of lawsuits spiraling out of control is likely to adversely impact the stock for the foreseeable future," Salomon Smith Barney oil field service analyst Geoff Kieburtz told clients Friday, when he downgraded the stock from buy to neutral |
