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As the economy picks back up, investors can expect to realize meaningful gains in energy plays. The oil equipment and services industry, in particular, has favorable risk/reward given solid emerging market demand and a return to industrialization in developed countries. Patterson-UTI Energy (PTEN) and Halliburton (HAL) are currently viewed favorably on the Street. Based on my multiples analysis and review of the fundamentals, I find meaningful upside for both firms.

From a multiples perspective, Patterson is the cheaper of the two. It trades at a respective 10x and 6.9x past and forward earnings with a dividend yield of 1.1% Halliburton, on the other hand, trades at a respective 11.3x and 8x past and forward earnings with a dividend yield of 1%. Even still, the latter is preferred on the Street with its "strong buy" rating.

At the fourth quarter earnings call, Halliburton's CEO, Dave Lesar, noted a strong close to the year:

"I'm very pleased with our results in the fourth quarter as we set new company records in both our North America and international operations. Revenues of $7.1 billion represents the highest quarterly revenue in the company's history, with North America, Latin America and the Middle East/Asia regions all achieving new record levels. Operating income of $1.4 billion was also a company record and was driven by strong performance in North America and the Latin America regions, where we had year-over-year revenue growth of 56% and 46%, respectively".

Over the last five years, the business has nearly doubled in size despite a challenging economy. Top-line records were set in production, drilling and evaluation. In addition, acquisitions in specialty chemicals (eg. Multi-Chem) have properly diversified the business and penetrated international markets. The recent decision that Transocean's contract (RIG) with BP (BP) indemnified the former from the Oil Pollution Act reduces the uncertainty of future charges against Halliburton. Lastly, the company's major contracts in Middle East have helped to lock out competition.

Consensus estimates for Halliburton's EPS forecast that it will grow by 8.2% to $3.97 in 2012 and then by 15.6% and 19.6% in the following two years. Assuming a multiple of 13x and a conservative 2013 EPS of $4.51, the stock could rise by 59.2%.

As high as the upside is for Halliburton, it is even greater at Patterson. Chesapeake (CHK) recently announced that it will be reducing its dry gas-based drilling rigs to 24 - a 50% reduction - by the second quarter of 2012. This covers Barnett, Haynesville, and Marcellus. In my view, the market has overreacted from this news. Insource investments by Normac Drilling and termination fees on 6 rigs helps Patterson hedge against the headwinds. Moreover, premium rigs are still in high demand with low supply, thus securing strong margins. Patterson plans on building 30 rigs in 2012 - a sign that it is confident about business trends.

Consensus estimates for Patterson's EPS forecast that it will grow by 25.9% to $2.67 in 2012 and then by 5.6% and 30.1% in the following two years. Assuming a multiple of 11x and a conservative 2013 EPS of $2.75, the rough intrinsic value of the stock is $30.25, implying 63.2% upside.

Source: Patterson, Halliburton Could Rise By 60%