Zacks: Keep Halliburton a Core Holding
Halliburton Company's (HAL) first-quarter 2008 results were on the weaker side, reflecting continued pricing pressure in the U.S. market. However, the company's income rose nearly 6%, driven by growing business in the Middle East, Asia and Latin America.
The company's overseas revenues were up 24% year-over-year and look set to achieve the targeted growth rate of 20% for the full year. Our Buy recommendation remains unchanged as we continue to view Halliburton as a core oilfield service holding.
We believe that the company will continue to reap the rewards of several strategic moves during the past year, resulting in further margin gains and a strengthened competitive position in its space. Despite some recent gains, Halliburton shares continue to trade at a significant valuation discount to its peer group. While the company no doubt has substantial exposure to North American natural gas through its market leading pressure-pumping business, its international leverage and presence appears to be under-appreciated.
The award of a major multi-year Saudi Aramco project highlights the strength of its international relationships, which we believe will get greater attention. With the KBR separation issue behind it, the new-look Halliburton is now a pure-play energy services provider; well positioned to capitalize on growth opportunities in its global energy services business.
Management is targeting industry leading revenue, earnings and returns performance metrics over the next few years, highlighting the breadth and depth of the company's oilfield franchise. Our new $55 price objective, raised from $44 before, is based on 2008 P/E and EV/EBITDA multiples of 14.8x and 19.2x, still below most of its large-cap peers.