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Halliburton Company (HAL) reported 4th quarter and full year results before the market opened on Friday, January 25th. While earnings declined some 26% year-over-year the company beat estimates by six cents, earning an adjusted 67 cents per share in the quarter. Halliburton had record revenue in the 4th quarter of $7.3 billion up 3.2% year-over-year and 2.5% sequentially. Revenue for the year climbed 15% to $28.5 billion, also a record for the company; furthermore Halliburton has now seen revenue nearly double since 2009.

International development is driving the growth in Halliburton and 2012 saw Halliburton providing services on the first commercial unconventional wells in Australia and China. Halliburton is also benefiting from investments in deepwater technology over the past few years and management believes this will be an important long term driver for the company. In the 4th quarter the company announced it had signed a contract to service mature TNK-BP tight oil reserves in Russia. Halliburton believes this is an important opportunity to showcase its expertise and help the company win future contracts in Russia. Management appears committed to an organic growth strategy in Russia where the company's market share is well behind Schlumberger Limited (SLB) and Weatherford International Ltd. (WFT). Deals like the one with TNK-BP are an important step for Halliburton in Russia, the world's second largest oil producing nation.

Halliburton believes that the 4th quarter marked the bottom for North American margins. North American operating margins in the quarter were only 12.4% and while the company believes significant margin gains are likely in 2013 there is no indication that margins will return to the mid 20% range anytime some. This market will benefit from no new equipment entering the market in 2013. Furthermore Halliburton will benefit in North America from decreasing guar gum costs and cost optimizations with the Frac of the Future. However the company believes even with the stabilizing of natural gas rig count in North America the market does not show signs of improving without a substantial increase in natural gas prices. Overall the company believes the North American rig count will be down in the low single digits compared with 2012, but will increase some throughout the year as activity increases.

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From the valuation perspective, even after the earnings beat, Halliburton looks undervalued compared with Schlumberger and Baker Hughes Incorporated (BHI). Halliburton has the lowest Forward P/E, PEG ratio, and EV/EBITDA ratio. While Halliburton's low dividend might be a disadvantage, the company said it will be focused on returning capital to shareholders in 2013 and that dividends and buybacks were on the table. Halliburton has significant room to increase the dividend with a payout ratio of around 12% and in the fourth quarter the company increased cash and investment securities by $779 million. One potential holdup is the ongoing litigation over the Macondo well blowout, however Transocean Ltd. (RIG) recently settled with the DOJ, leaving only Halliburton who has not settled. I believe this means Halliburton's settlement on this from could happen soon.

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Halliburton remains one of my top picks for 2013 with the tailwinds in the North American market and the continued success internationally. Management's investments in technology over the past few years are beginning to payoff for the company and with the ability to scale back on capex spending in 2013 free cash flow should be strong over the next few years. However it could be worth it to wait for a small pullback before buying into this stock. The chart shows a stock that was consolidating and has now broken out to the upside. There is also a strong uptrend that has been in place since mid November and resistance in the $38 range that has now been broken. The time to enter now could be if the stock pulls back to the uptrend line and the former resistance line and holds at that level. This could provide the support the stock needs to make the move above $40 per share where I do not see any resistance until the $50 level.

Data sourced from: Company filings, and Yahoo!Finance. Chart from: Freestockcharts.com

Source: Halliburton's 4th Quarter Sets Up A Strong 2013