(HAL) Halliburton Analyst Retains Neutral Rating

March 18th, 2010

Halliburton (HAL) enjoys a strong competitive position in the global oilfield services market. We like the company’s broad and technologically complex product and service offerings, along with its robust financial profile. Halliburton is among the top three players in each of its product/service categories, and is present in all major hydrocarbon-producing regions of the world.

However, Halliburton’s overexposure to domestic natural gas prices remains a cause for concern. Being a global leader in the vital oilfield service, the company remains more vulnerable to the travails of pressure pumping than its large-cap diversified peers like Baker Hughes (BHI) and Schlumberger (SLB). These factors, especially the sharp cyclical downturn in the all-important North American market, weighed heavily on Halliburton’s 2009 results and dragged them much below the year-ago levels.

The company has a strong international oilfield presence, with the oil-rich Eastern Hemisphere becoming its fastest growing segment. Halliburton’s international operations held up reasonably well in the downturn and provided some cushion to the company’s performance last year.

While North American activity levels are showing signs of revival, we note that this market remains highly dependent on natural gas prices. Further, the international markets are expected to continue weakening into 2010. These factors are likely to weigh on the company’s revenue and profitability during the next few quarters. As such, we see the stock performing in line with the broader market and maintain our Neutral recommendation.

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