Halliburton (HAL) reports first quarter earningsbefore the bell tomorrow; EPS is expected to be $0.52 after a mid-March revision after the company lowered guidance.
Halliburton’s main competitorshave already reported, with Schlumberger (SLB) reporting last week and Baker Hughes(BHI) just reportingthis morning. Schlumberger reported 63% growth in profits on a 28% risein revenue. Baker Hughes reported EPS of$1.17 versus estimates of $1.10, while revenue rose 20% in the quarterto $2.47 billion. North American revenue was up 14% at Baker Hughes(to $1.047b); the company is forecasting about 7% growth in that marketfor the rest of the year and 19% to 20% for international markets.
Halliburton has a similar revenueprofile to Baker Hughes; BHI has about 42% of revenues coming from NorthAmerica, while Halliburton has about 50% (as of 12/31/06). Schlumbergerhad such a strong earnings report mainly because nearly three-quartersof their revenue comes from overseas.
The KBR spin-off is complete,with the remaining 81% of the company exchanged with HAL shareholdersin a tax-free transaction on April 5th. As we’vestated before in our break-up analysisof Halliburton,this split should benefit HAL shareholders over time to the tune ofa higher multiple, one closer to the 22x trailing earnings seen at SLB(HAL trades for 14x earnings) S&P also has the company on "positive credit watch" since the KBR spin-off.
Plus, with KBR off the books,it won’t be quite as easy to hate this company. Therewon’t be Iraq contract disputes to deal with anymore, but then againthis is a company that just moved its headquarters to Dubai. Thatmight help win a few contracts in the Middle East that were on the fence,but there is bound to be some drag on the stock just based on perceptions.
People’s opinions on thefuture price of oil vary greatly, but most estimates center on pricesgoing higher (or at least remaining high) rather than lower. T. Boone Pickens reiterated yesterdaythat he thinks oil willhit $80 this year. We are already well within the range at which it is profitable to drill,and the longer oil prices stay high, the easier it becomes to make capitalallocation decisions in favor of higher oil exploration.
Ryan Barnes
April 25, 2007
Ryan Barnes can be reachedat [email protected]; he does not own securities in thecompanies he covers.
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