Halliburton Company (NYSE: HAL) slumped in October, falling double digits at one point before ending the month down 7.2%. That decline came despite an analyst upgrade and the company's expectation-crushing third-quarter results. Instead, investors focused on the oil-field service giant's outlook, where it warned of a slowdown in the coming quarter.
Halliburton initially started the month on a positive note after analysts at Deutsche Bank said that the fracking giant was one of its three best long-term ideas among oil service stocks, along with Patterson-UTI Energy (NASDAQ: PTEN) and C&J Energy Services (NYSE: CJ). Driving that view is the fact that Halliburton, Patterson-UTI Energy, and C&J Energy Services all have exposure to the U.S. pressure pumping market, which means these companies perform the actual fracking by pumping fluids under high pressure into a well to create fractures in the rock so oil and gas can flow through. In the bank's view, pressure pumping prices will increase as the industry completes more wells, which should boost the profitability of Halliburton, Patterson, and C&J.
That said, Halliburton's management team warned on the third-quarter conference call that drillers in the U.S. have noticeably slowed their pace in response to lower oil prices earlier this year. As a result, the company anticipates that revenue from its drilling and evaluation business might drop next quarter. That would mark a significant step backward for a segment that grew sales 15% last quarter.
As is often the case, the market focused on the near-term headwinds facing Halliburton, which drove its stock down. However, this looks like a temporary blip in the road since the longer-term outlook for the oil market continues to get brighter. Thus, better days appear to be up ahead for Halliburton, especially as service prices improve. That catalyst could reward investors bold enough to take advantage of last month's sell-off.
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