Weatherford International: Volatile But Well Valued

Weatherford International (NYSE:WFT) is a Swiss-based, multinational company providing services and manufactured goods for the oil and natural gas industry. Recently, the company's audit committee announced KMPG LLP will be its independent registered public accounting firm for the year ending on December 31st, 2013. It is not uncommon or nefarious for companies to switch auditors, and this could even be considered a view to increase transparency and demonstrate good corporate governance in the future.

WFT has two main revenue segments which are Formation Evaluation & Well Construction and Completion & Production. These two macro-segments of WFT's revenue are comprised of 10 service lines that together encompass the well creation pathway from drilling to constructing, and then completing the well. WFT serves customers in over 100 countries.

During late June of 2008, WFT encroached over a $33 billion dollar market cap with share prices reaching almost half a Benjamin. However, by the end of 2008 (the same year Bear Stearns fell), WFT share prices plummeted under double digits and the market cap was reported to be $6.1 billion in December 2008. During this same period the SPX composite dropped from a peak of trillion to $6.17 trillion and Haliburton (NYSE:HAL), Weatherford's major competitor, fell from $45.5 billion to $12.79 billion. Compared to the 56.2% and 72.6% decline in market cap of the SPX and HAL respectively, Weatherford's 80% drop does not demonstrate intrinsic issues with its business model. However, WFT did suffer greater damage from the recession than Haliburton and significantly greater repercussions than the larger index.

Revenue growth year over year for 2012 has been 14.4% compared to 21.5% during the same period a year ago. Compared to year over year growth for Haliburton during 2012 and 2011 of 12.9% and 27.5% respectively, Weatherford is on par with its competitor. Gross Profit year over year growth during 2012 and 2011 for WFT has been 1.4% and 20.24% respectively, and the analogous numbers for Haliburton are -13.1% and 35.7%. The decreases in year-over-year growth in revenue and gross profit between 2011 and 2012 are 7.1 and 18.84 percentage points respectively. In comparison, Haliburton has decreased in year-over-year growth in revenue and gross profit by 14.6 and 48.8 percentage points respectively. The performance of WFT is in line with Haliburton, and the decline in growth should be seen as a bad year for the industry in general, rather than a deficiency in company operation. I have also included a chart below with these numbers.





revenue growth (yoy)

revenue growth(yoy)


profit growth (yoy)

profit growth (yoy)





(7.1 points)



(18.84 points)




(14.6 points)



(48.8 points)

(Data obtained from Bloomberg)

Despite the decrease in year-over-year growth in both revenue and gross profit, WFT should not be considered a failing company. The losses in growth for both WFT and HAL should not be majorly attributed to internal issues but rather from external factors such as policy and demand. The oil and gas industry is a highly volatile industry, especially as environmental policies are continually passed and amended, which ultimately play a deterministic role in the ability for companies like WFT and HAL to sign contracts with governmental and private clients. Furthermore, because of the high role that governmental policies play in the success of these companies, government clients have a significant leverage over WFT and its competitors. The bets placed on WFT should be in line with the regulations that are being passed.

In Conclusion:

It is difficult to make a strong prediction for the future of WFT because of the high volatility intrinsic to the oil and gas industry. Right now, WFT has a Price-to-Book Value of 1.024, signifying that WFT is well priced and buying shares of WFT is a good investment for your money. Furthermore, the PEG ratio for WFT is less than 1 right now, and I translate these numbers to indicate that WFT shares are actually undervalued. If the political environment fosters growth, a long position now will surely pay off.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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