Halliburton Company (NYSE:HAL) and Weatherford International Ltd (NYSE:WFT) are two oil well services and products providers, both with higher revenue growth and lower Forward P/E as compared to their peers. Both companies had received analysts' upgrades recently and will be analyzed fundamentally and technically in this article. Investing strategies will also be presented.
HAL was up 0.08% and closed at $39.47 on March 21, 2013. HAL had been trading in the range of $26.28-$43.96 in the past 52 weeks. HAL has a market cap of $36.78B with a beta of 1.61. After years of integrating its drilling services, HAL has an edge with more optimized services with lower cost. By standardizing on Halliburton's services, which placed its drilling engineering applications under one roof, customers could obtain substantially greater well performance and reduce the levels of nonproductive time.
On March 21, 2013, Guggenheim upgraded HAL from neutral to buy with a price target of $48.00 (from $42.00). Analysts currently have a mean target price of $48.63 and a median target price of $48.00 for HAL, suggesting 21.61%-23.21% upside potential. Analysts, on average, are estimating an EPS of $0.58 with revenue of $6.89B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $3.00 with revenue of $29.69B, which is 4.20% higher than 2012.
HAL significantly expands the company's Completion Tools technology and manufacturing capacity by opening a new Completion Technology and Manufacturing Center in Singapore in mid-March. According to the management, the new facility will allow the company to deliver a broad portfolio of completion products and react more quickly to our customers' needs.
There are a few positive factors for HAL:
- Higher revenue growth (3 year average) of 24.8 (vs. the industry average of 6.5)
- Higher net margin of 9.2% (vs. the average of 8.7%)
- Stronger ROE of 18.2 (vs. the average of 12.0)
- Lower debt/equity of 0.3 (vs. the average of 0.4)
- Lower P/E and P/S of 14.2 and 1.3 (vs. the industry averages of 18.8 and 1.5)
- Lower Forward P/E of 10.1 (vs. the S&P 500's average of 13.9)
- HAL currently offers an annual dividend yield of 1.27%
Technically, the MACD (12, 26, 9) indicator is showing a bearish trend, and the MACD difference continues to diverge. The momentum indicator, RSI (14), is indicating a bearish lean at 41.68. HAL is currently trading above its 200-day MA of $34.32 but is trading below its 50-day MA of $40.03 in the last few trading days. The next support is $39.22, the S1 pivot point, followed by $37.06, the S2 pivot point, as seen from the chart below.
How to Invest
With 16.39% expected annual EPS growth for the next 5 years, HAL remains a buy at current valuation (Forward P/E of 10.1). However, it is important to see if HAL can break above its 50-day MA to determine its near-term direction. Investors can also review the following ETFs to gain exposure to HAL:
- Dow Jones U.S. Oil Equipment & Services Index Fund (NYSEARCA:IEZ), 8.91% weighting
- Energy Select Sector SPDR (NYSEARCA:XLE), 2.90% weighting
- SPDR S&P Oil & Gas Equip & Service (NYSEARCA:XES), 2.71% weighting
Weatherford International Ltd
WFT was down 0.17% and closed at $11.44 on March 21, 2013. WFT had been trading in the range of $8.84-$17.42 in the past 52 weeks. WFT has a market cap of $8.75B with a beta of 1.87. WFT had been struggling as the company had been chasing growth with low bids for contracts, resulting in lower margins. However, with estimated 26.90% annual EPS growth for the next 5 years, there is more upside potential in the long-term.
On March 21, 2013, Raymond James upgraded WFT from underperform to outperform with a price target of $13.50. Analysts currently have a mean target price of $14.50 and a median target price of $14.00 for WFT, suggesting 22.38%-26.75% upside potential. Analysts, on average, are estimating an EPS of $0.16 with revenue of $3.90B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $0.89 with revenue of $16.48B, which is 8.30% higher than 2012.
The EPS for WFT is expected to grow significantly and reach estimated $2.40 for 2016, as seen from the chart below.
There are a few positive factors for WFT:
- Higher revenue growth (3 year average) of 19.9 (vs. the industry average of 6.5)
- Lower P/B and P/S of 1.0 and 0.6 (vs. the industry averages of 2.1 and 1.5)
- Lower Forward P/E of 9.0 (vs. the S&P 500's average of 13.9)
Technically, the MACD (12, 26, 9) indicator is showing a slightly bearish trend. RSI (14) is indicating a bearish lean at 40.40. WFT is currently trading below its 50-day MA of $12.32 and 200-day MA of $11.96. The next support is $10.92, the S1 pivot point, and $9.96, the S2 pivot point, as seen from the chart below.
How to Invest
With the recent pull back, investors can consider establishing the positions for the long-term. For bullish investors, a credit put option spread of June 22, 2013 $9/$10 put can be reviewed. Investors can also review the following ETFs to gain exposure to WFT:
- Dynamic Oil Services (NYSEARCA:PXJ), 5.18% weighting
- SPDR S&P Oil & Gas Equip & Service , 2.72% weighting
Note: All prices are quoted from the closing of March 21, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
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.