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Is This the Right Time to Dump Halliburton (HAL) Stock?

Zacks Equity Research
Updated

Is This the Right Time to Dump Halliburton (HAL) Stock?

On Mar 29, Zacks Investment Research downgraded the oilfield services provider Halliburton Company HAL to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Being a leading North American oilfield services firm, Halliburton’s business is dependent on crude oil prices. Crude price has plunged since Jun 2014 owing to excess supply in the face of lackluster global demand. The commodity price has witnessed a massive fall from the $100 per barrel mark and has kept sliding to the current trading level of around $38 per barrel. In fact, it is expected to remain low at least in the near term.

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As crude remains in the bearish territory, top energy companies have resorted to spending cuts on the back of lower profit margins. This, in turn, means less work for equipment suppliers like Halliburton, which supports drilling players in setting up oil wells.

With oil price expected to remain low, the world's second-largest oilfield services company – Schlumberger Ltd. SLB being the largest – is planning to lower capital expenditure for 2016 by $600 million. Accordingly, this year’s spending is estimated at $1.6 billion, which is 27.3% below the 2015 figure. However, with lower expenditures there will be lesser oil field services. This will translate into decreased revenues.

Also, the latest spate of job cuts announced by Halliburton points to further structural pressures on the company, which is already suffering from the downturn in commodity prices.

As a result of these factors, the tendency for a downward estimate revision has been more obvious in recent times. Over the past 60 days, analysts have become increasingly bearish on the Houston, TX-based firm, with seven downward estimate revisions for the company’s 2016 earnings. This has led to a sharp fall in the Zacks Consensus Estimate for 2016, which now stands at 47 cents.

Stocks That Warrant a Look

While we expect Halliburton to perform below its peers and industry levels in the coming months and see little reason for investors to own the stock, one can consider energy sector stocks like Sasol Ltd. SSL and Vanguard Natural Resources, LLC VNR. Both these stocks sport a Zacks Rank #1 (Strong Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
SCHLUMBERGER LT (SLB): Free Stock Analysis Report
 
HALLIBURTON CO (HAL): Free Stock Analysis Report
 
SASOL LTD -ADR (SSL): Free Stock Analysis Report
 
VANGUARD NATURL (VNR): Free Stock Analysis Report
 
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Zacks Investment Research