Monday, July 24, 2006

Calls of Note Part 2

Several firms are defending Halliburton (NYSE:HAL) this morning:

*Bear Stearns notes Halliburton reported 2Q06 EPS of $0.48 vs. BSC and consensus estimates of $0.49. Firm believes that last Friday's 8% decline in HAL shares was due to investors' disappointment with "in-line " results. Believes investors were looking for HAL to beat estimates in a more convincing fashion. HAL's earnings results may have added to growing skepticism regarding continued growth in North America.

Within the context of this business environment, it is not surprising that Halliburton announced that it is now pursuing a spin-off of KBR to Halliburton shareholders. In light of KBR's weak results and a difficult IPO market, a pure spin-off may be a better alternative. Although the company has not ruled out the possibility of an IPO (particularly if the OSX rebounds), it is no longer regarded as a necessary first step. Halliburton intends to seek a ruling from the IRS regarding the tax-free status of the transaction prior to a spin-off, and estimates the process will take six to nine months to complete. Firm believes the spin-off will unlock each division's true value, and ultimately lead to a higher stock market value for the stand-alone Energy Services Group.

Believes the current sell-of is overdone and that Halliburton shares represent a compelling investment opportunity. Maintains 2006 EPS estimate of $2.05 and 2007 EPS of $2.55, and continues to rate HAL shares Outperform.

*UBS says they think the sell off in the shares on recent weeks and specifically in response to earnings is overdone and given its competitive growth rate and returns its valuation is extremely attractive.

Firm notes mgmt reiterated its growth outlook and sees continued strength in both N American and international markets. The US market continues to grow despite concerns about gas prices. HAL saw strength both on and offshore in 2Q:06 which could continue through 2007. Their estimate for 2006 rises $.02 to $2.14 and estimate for 2007 rises to $2.71 from $2.53. The driver of the changes is stronger expected ESG revenues and slightly higher margins offset by more conservative assumptions for KBR, especially on the G&I side of the business in Iraq and a flatter backlog in E&C than expected.

Reits Buy and $50 tgt.

Notablecalls: HAL may prove to be a nice bounce candidate over the coming days.

No comments: