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With Halliburton, Iberia Asks 'Why Look Elsewhere?'

Halliburton Company NYSE:HAL, Baker Hughes Incorporated NYSE:BHI - With Halliburton, Iberia Asks 'Why Look Elsewhere?'

Iberia Capital’s Robert MacKenzie believes that Halliburton Company HAL 1.25% is the best positioned service company to benefit from a North American recovery given its leadership position in key markets – including pressure pumping and completions.

The analyst maintains an Outperform rating on the company, while raising the price target from $40 to $50.

Well Positioned

“In NAM alone Halliburton has been carrying extra costs related to the merger, which it started to unwind (facility closures) in 1Q,” MacKenzie mentioned.

Halliburton expects to reduce annualized costs by $1 billion from its global business by the end of 2016. MacKenzie noted that the 2Q guidance already includes these savings.

“The company intends to focus capital on organic growth opportunities, strategic bolt-ons to round out its portfolio of offerings, and finally share repurchases,” the analyst stated.

MacKenzie also noted that Halliburton’s “well maintained, largely staffed fleet” was well positioned to capture additional market shares as demand recovers.

The Baker Hughes Relationship

The analyst mentioned that the strategy being now used by Baker Hughes Incorporated BHI 1.84% is to become more “asset light” and to sell some of its products internationally via distribution channels.

This, “combined with the ‘gaps’ in Halliburton's product/service offerings, we believe Halliburton would gladly re-sell certain Baker products, such as production chemicals and/or artificial lift as part of an integrated service offering,” MacKenzie said.

If Baker Hughes agrees to this, the two companies would become more competitive against their larger peer, Schlumberger Limited. SLB 0.37%.

DateFirmActionFromTo
May 2016iBERIA Capital PartnersMaintainsOutperform
Apr 2016CitigroupMaintainsBuy
Apr 2016Morgan StanleyMaintainsOverweight

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