Halliburton Company (HAL) Poised to Improve Margins Even With Modest Top-Line Growth

January 8, 2014

Halliburton Company is in a position to report earnings growth and margin growth, even though revenue is expected to increase at a more modest pace, according to J.P. Morgan Analyst David Anderson. He credits the company’s efforts to improve operational efficiency.

“In Halliburton’s case, the company is getting more efficient with equipment and supply chain, seeking to increase margins in North America by 500 basis points over the next three years without any help from pricing – a lot of internal work to increase efficiency and improve margins,” Anderson says.

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Anderson says that in the current environment, expected margin improvement is a reason to own larger oilfield services and equipment stocks rather than smaller pure plays.

“On the contrary, we see many momentum investors trying to own some of the pure North American names, but we think that’s a mistake,” Anderson says. “I think a lot of these smaller companies in particular are going to be very much at a disadvantage to the Halliburtons, to the larger integrated players out there. So we’re shying away from those small discrete players, preferring the bigger companies that have more opportunities to grow margin without help from the top line.”