Halliburton Fans Spy Opportunity in Iraq Crisis

SIG Susquehanna analyst, Kevin Wood, takes a similar stand on the company. He says the "sensational headlines [have] little substance." He believes that investors should buy the stock on dips. He also says they'll be getting KBR, a huge source of revenue, absolutely free.

That's because for all its headlines -- and its multibillion-dollar contracts -- KBR is viewed as rather insignificant in the eyes of many investors.

To begin, it is one of two Halliburton units pressured for years by asbestos liabilities. Secondly, it relies on huge volumes of Iraqi work that is discounted by long-term investors as temporary in nature.

Low Margins

Granted, Halliburton is expected to generate $9 billion in revenue -- or 40% of the companywide total -- from KBR's work in Iraq this year. But the Iraqi contracts are hardly as lucrative as all the headlines might suggest. On average, analysts estimate, KBR earns just a slender 2% profit margin for its work in the violent country.

Still, the Iraqi projects are expected to contribute around 24 cents a share, or 18% of annual profits, to Halliburton's bottom line this year and next, Russell calculates. And Wood, for one, sees plenty of value in the KBR unit -- even after excluding the temporary business in Iraq.

"Our appraised value estimate of KBR assets is $1.2 billion," Wood noted. "We believe a sale or spinoff of KBR could unlock this value, but only once the asbestos issue is resolved."

Halliburton is headed to court next month in pursuit of a final settlement that, if reached, could finally resolve the asbestos issue later this year. In the meantime, the company will continue to generate huge sales -- although smaller profits -- for its dangerous work in Iraq.

Just this week, in fact, the company reiterated its commitment to working in the war-ravaged country. And it continues to attract fresh recruits despite the escalating violence.