On Sep 26, Zacks Investment Research downgraded Halliburton Co. HAL – the No. 2 oilfield services provider – to a Zacks Rank #5 (Strong Sell), placing it in the bottom 5% of all stocks that Zacks ranks.
As crude remains in a bearish territory and hovers around $45 to $50-a-barrel level, top energy companies have resorted to spending cuts (particularly on the costly upstream projects) on the back of lower profit margins. This, in turn, means less work for equipment suppliers like Halliburton, which supports the drilling players in setting up oil wells.
While producers have reigned in expenses in almost all regions leading to a drastic fall in the worldwide rig count, the rate of decrease has been most acute across North America. Predictably, Halliburton’s activity levels and orders have taken a hit. Pricing pressure has added to the pessimism.
With oil price expected to remain low, the world's second-largest oilfield services company after Schlumberger Ltd. SLB is planning to lower its capital expenditure during the second half of 2015 by $200 million. Accordingly, this year’s spending is estimated at $2.6 billion, which is 21% below the 2014 figure. However, with lower expenditures there will be lesser oil field services. This will translate into decreased revenues.
Uncertainty also exists regarding Halliburton's proposed acquisition of smaller rival Baker Hughes Inc. BHI, considering the significant overlap between the firms. Any negative development on this front will severely jeopardize Halliburton's future earnings prospects apart from entailing a hefty termination fee.
Finally, Halliburton’s latest spate of job cuts points to further structural pressures on the beleaguered company.
With a turnaround appearing unlikely, analysts have turned sour on Halliburton. While the company displays the bottom Zacks Rank, its earnings are on track for a sizeable plunge of 61% this year. Over the past month, analysts have become increasingly bearish on the Houston-TX-based firm, with 9 downward estimate revisions for the company’s 2015 earnings. This has led to a sharp fall in the Zacks Consensus Estimate for 2015, which now stands at $1.58.
Stocks That Warrant a Look
While we expect Halliburton to perform below its peers and industry levels in the coming months and see little reason for investors to own the stock, the entire energy landscape isn't in a decline as there are some interesting choices out there that could be bought. In particular, one can look at Matrix Service Co. MTRX. The stock sports a Zacks Rank #1 (Strong Buy).
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Click to get this free report BAKER-HUGHES (BHI): Free Stock Analysis Report SCHLUMBERGER LT (SLB): Free Stock Analysis Report HALLIBURTON CO (HAL): Free Stock Analysis Report MATRIX SERVICE (MTRX): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research