| | | Halliburton Co (HAL)
Reiterate Buy after Solid Quarter and Constructive Outlook
22 July 2013 ¦ 20 pages ir.citi.com
HAL delivered a slight EPS beat ($0.73 vs. our $0.72).Commentary that excess
pressure pumping capacity would linger into 2014, and that Macondo settlement
talks had not progressed, marginally disappointed. We have increased our price
target from $47 to $53 to reflect improvements to Eastern Hemisphere growth
prospects and solid execution of HAL's North American efficiency initiatives. We
continue to view HAL as the best value in the diversified services space and we
reiterate our Buy rating.
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Halliburton (HAL)
The One You Marry
23 July 2013, 11 pages
Download link on This Page.
No Good Performance Goes Unpunished. HAL did well this quarter and
delivered on its promises, but this did not show up in the stock price—a
buying opportunity. Activity is strong—frac stages are on par with 3Q12, the
latest peak in Oilfield Service activity. Growth in North America (NAM) is the
primary investor concern. Recovery in Canada and the Gulf Of Mexico
(GoM) will drive NAM revenues higher in 3Q13, with service intensity and rig
efficiency aiding onshore; but given a record frac stage run rate, significant
upside will depend on pricing which should kick-in sometime next year. The
outlook on fundamentals remains strong and we are raising 2013 EPS to
$3.22 from $3.21 and 2014 to $4.26 from $4.08, and TP to $55 (from $53).
Not Just a NAM OFS Company. HAL delivered leading YoY international
revenue growth for the 5th consecutive quarter (+14% YoY; see Exhibit 1).
2Q13 international op income was 48% of EBIT. Eastern Hemisphere also
grew at the top of the peer group, YoY revenue and EBIT were +16% and
+23%, respectively, which even outpaced SLB's impressive Eastern
Hemisphere performance of +12% revs and +18% EBIT and BHI's +12% rev
and +9% EBIT YoY. HAL mentioned a few recent wins that will help propel
its strength in the region including a $500mm fluids contract in Malaysia, an
offshore cementing contract, and a $100mm five year contract in the North
Sea. We project Eastern Hemisphere YoY growth to be 20% for sales and
27% for EBIT in 3Q13.
Long Term View Intact; Buy It. We reiterate our Outperform rating and are
increasing our TP to $55 from $53; our target continues to be based on 6.5x
our 2014 EBITDA estimate (which is now $8.1B). HAL continues to trade at
a discount to its closest peer: 29% and 24% on EV/Ebitda and P/E
respectively, a discount we do not believe is justifiable given HAL’s superior
returns and international revenue growth. |
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