Why This Halliburton Bull Is Cutting His EPS Estimates

RBC Capital’s Kurt Hallead maintained an Outperform rating on Halliburton Company HAL, with a price target of $42.

While mentioning that “HAL continues to operate well in the face of declining worldwide activity levels,” Hallead also stated that the company was continuing to move forward with the Baker Hughes Incorporated BHI deal.

NAM Recovery

Halliburton also expressed optimism regarding an eventual recovery in the NAM region, although Hallead believes that any significant recovery was likely to be pushed into 2017.

In fact, the analyst pointed out that NAM margins were moving into negative territory, with revenue expected to decline 51 percent year on year and NAM margins falling to 8 percent in 2016, representing a 1,200 bps year on year drop.

However, Hallead also believes that margins would bottom in 2Q. “With further cost reductions coming in 2016, we believe the company can keep 2016 NAM decremental margins in the 15-20 percent range,” The analyst said.

International Decline

On the other hand, Halliburton’s is likely to see declines internationally, which are expected to be more severe in 2016 than in 2015, with margins beginning to fall, driven by declining pricing and unabsorbed costs.

Hallead expects revenues to decline year on year in the LAM, ECA and MEAP regions, with margins also falling.