Halliburton (IL/A): Raising estimates + fair value to $58 April 25, 2005
Following a review of our model post strong 1Q2005 earnings, we are raising our 2005-06 EPS estimates for HAL to $2.55/ $2.75 from $2.05/ $2.50 due mainly to stronger E&C margins and lower tax rate. We are also introducing a 2007 EPS estimate of $3.04 and raising our fair value estimate from $48- 49 to $58 (21x 2006 PE), which implies 32% upside potential. We maintain our IL/A rating as we continue to prefer BHI, RIG, DO, SLB and SII due to valuation, strategic position and/ or for where we are in the cycle.
2005 EPS REVISION DRIVEN BY HIGHER MARGINS + LOWER TAX RATE
We are raising our 2005 EPS estimates by $0.50 due to a 31% tax rate vs. assumptions of 37.5% prior (+$0.25), higher E&C margins (+$0.18), and higher oilfield revenue + margin assumptions (+$0.17), partly offset by higher corporate, interest expense + share count (-$0.09). Our new estimates assume OFS revenue growth of +19% yoy, with 42% incremental margins compared to prior estimates of +16%/ 39% as both rig count and pricing are exceeding prior expectations. Our Engineering & Construction margin assumption of 3.1% is 120 bps higher than prior due mainly to restructuring benefits and reduced impact from weak margin fixed-price EPIC contracts in the Energy + Chemicals segment.
2006 EPS REVISION DRIVEN BY HIGHER OFS REVENUE + MARGIN ESTIMATES
We are raising our 2006 EPS estimates by $0.25 due to higher oilfield revenue + margin assumptions (+$0.28), higher E&C margins (+$0.08), partly offset by higher corporate, interest expense + share count (-$0.11). Our new estimates assume OFS revenue growth of +12% + incremental margins of 36% compared to prior estimates of +12%/ 32%. Our Engineering & Construction margin assumption of 3.1% is 80 bps higher than prior due to +200 bps assumption in Energy + Chemicals margin to 5.7%.
I, Terry Darling, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. |
