Why This Halliburton Bull Is Cutting His EPS Estimates

RBC Capital's Kurt Hallead maintained an Outperform rating on Halliburton Company (NYSE: 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 the company was continuing to move forward with the Baker Hughes Incorporated (NYSE: BHI) deal.

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 Q2. “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 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.