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HAL: Undervalued by at Least 33%

NEW YORK ( TheStreet) -- It always amazes me how, when discussing some of the more prominent oil companies on the stock market, it requires a considerable amount of prying to get Halliburton (HAL - Get Report) included in the conversation among names such as Exxon Mobil (XOM) and Schlumberger (SLB). Particularly when, compared to Schlumberger, the stock is trading at a significant discount with a price-to-earnings ratio of 8 points less. Meanwhile the company has demonstrated on a consistent basis not only that it can beat analysts' expectations, but it also understands the importance of delivering on the bottom line.

I've placed some huge bets on Halliburton recently. It was clear to me that when 2011 ended, the company was going to be among of a small group that stood to benefit from rising oil prices in 2012 and the resulting effects of an increase in drilling. Disappointingly, the bet has yet to come to fruition as oil prices have shown to have had little effect on the overall energy sector due to reported supply-chain issues.

This has brought me to a point where I must decide is it time to move on or do I exercise patience and wait to see if the worst is over?

A Better First Quarter

In its most recent quarter the company reported net income of $627 million or 68 cents per share for the quarter ending in March -- representing an increase of over 21%. Extracting out the $300 charge incurred from BP's (BP) 2010 oil spill, earnings would have arrived at 89 cents. Analysts had expected 85 cents a share. For the quarter, revenue arrived at $6.86 billion -- not only topping the $5.28 billion that it logged a year ago, but beating analysts' estimates of $6.80 billion.

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The company also said, due to production movement away from lower-profit gas operations, the number of active oil rigs in the U.S. climbed to a 25-year high. For the quarter, there was a 12% increase in the average number of active rigs drilling for oil in the U.S., while gas rigs fell 17%. The company also reported growth of 35% to $4.3 billion of its completion and production segment -- a part of the business that provides stimulation and cementing services. The company said the growth was due to demand for pressure-pumping services in the U.S. land market.
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