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'Praising' Weatherford: Not as Bad as It Used to Be

On an adjusted basis, excluding out one-time items, Weatherford's earnings of 23 cents per share was actually good enough for a 2-cent beat, even though revenue was flat at $3.82 billion. The manner in which Weatherford was able to do more with less during the quarter was on par with Baker Hughes' results, from the standpoint of operational efficiency, that is.

Unlike Baker Hughes, Weatherford is still struggling to grow in North America, where it posted a 7% year-over-year decline. As with both Schlumberger and Halliburton, progress continues in international markets, particularly in Europe, Africa and Russia, which contributed to a better-than-expected 6% growth. But I believe management's restructuring plans, which include extensive cost-cutting measures, should spur more long-term profits.

Management also plans to divest some of the company's best-performing businesses. I'm not entirely on-board with this idea. While divestment strategies have worked for many other companies, including Halliburton, I don't see Weatherford as being in a position to sell off strong cash-flow generating assets, much less those producing close to $4 billion in annual revenue.

The good news: Divestments will allow management to focus on higher-margin businesses like pressure pumping, which is still strong here in the U.S. and a key component of hydraulic fracturing, or "fracking." The other potential benefit will be the company's plans to spin-off land-drilling rig contracting business into an initial public offering, of which the proceeds will be used to repay as much as $5 billion worth of debts by 2015.

Weatherford has more than its share of question marks. And making a play right here requires the belief that not only can management execute on its restructuring plans, but if/when this company does get back on track, the residual effects from past transgressions will be minimal. Given that the stock price is still down more than 65% from its 2008 high, I believe it's worth the risk, even if "not as bad as it used to be" might be as good as it's going to get for a while.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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