Halliburton Earnings: Guiding Down Could Be a Good Thing

NEW YORK (TheStreet) -- A market reset could be just the thing for Halliburton(HAL).

Using the term "reset" generally implies a move down in shares, but for Halliburton it could provide the opposite effect.

Here's why: Investors have already priced disaster into the oil service stock, and that could create a situation that's pretty rare on Wall Street: A company guides below the analysts' consensus view for the coming year and shares rally.

Halliburton has a heavy burden headed into earnings.

The current range of estimates shows the extent of the divide on Halliburton. The low view for earnings per share in 2012 is $3.49, while the high is $5. The average estimate of analysts polled by Thomson Reuters is for a profit of $4.13 a share this year.

If you think that $3.49 estimate is the work of a Chicken Little sky is falling out-of-touch analyst, consider what's going on in the North American land drilling market right now. If you've turned on CNBC for even a minute on any given day in 2012, the top story has been the seemingly unstoppable slide in the price of natural gas.

Halliburton is the king of the pressure pumping services that have been behind the boom in recent years in North American drilling, but with natural gas reaching pricing levels never imagined and many drilling projects becoming uneconomic for exploration and production companies, something has to give.

So far, what has given is the market's valuation of Halliburton. Whether or not the search for liquids -- in particular oil -- can offset the expected decline in gas drilling is the kind of unanswerable question that leads to the kind of rocky ride Halliburton has experienced.

Given the circumstances, Halliburton could guide down from the current consensus. And as Wall Street models adjust to the new reality, it could actually buoy shares. There's fair reason to suspect that the current disconnect between the market valuation of the stock and the analyst consensus is a gap that can be bridged if Halliburton comes in somewhere in between disaster and the gangbusters environment of the former North American land drilling boom when the company beat and raised every quarter.

The prevailing sentiment, to be sure, remains disaster. When Schlumberger(SLB) reported on Friday, it's lack of visibility about the North American market probably helped send Halliburton shares down another 1%, even as Schlumberger rallied on its top and bottom line beat.

There's a bit of a self-serving interest in Schlumberger playing down the North American issue. It can't ignore the issue -- the days of its business being 80% or more international are gone -- but Schlumberger is sticking to its market advantage: Being more levered to the recovery in international and deepwater drilling than beholden to North America.