Not surprisingly, Halliburton’s (HAL) in-line Q2 did not trigger the rally that Baker Hughes (BHI) and Schlumberger (SLB) did when they beat consensus. In fact, the stock tanked. But JP Morgan believes that that the sell-off is overdone and that HAL’s 2009 consensus earnings estimates are going to go up:
Despite its in-line Q and positive commentary, HAL closed down 5.3% yesterday, signaling perhaps that the results were not enough. However, we believe the sell-off reflected:
(1) the surprise strength in pumping pure-play BJ Services (BJS) FY 3Q results (investors continue to look to HAL as the proxy for shale stim activity, so in-line looked optically light on this basis)
(2) concern about HAL’s balance sheet exposure to KBR-related liabilities (in this credit-sensitive environment, unquantifiable balance sheet risk is penalised)
(3) there was little discussion of hard growth targets (e.g., BJS mentioned price-book increases and BHI identified projects and rev opportunities). In our view, the sell-off was overdone.
JP Morgan reiterates OVERWEIGHT on Halliburton (HAL).