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Halliburton's Pump Is Primed for $65

Stocks in this article: HAL SLB BHI

NEW YORK (TheStreet) -- There has never been any doubt that Halliburton (HAL), the world's No. 2 oilfield services company behind Schlumberger (SLB), has had strong operational performances. The question, though, has been whether Street expectations -- especially amid perpetual weak demand in North America -- have been too high. Given that the region accounts for roughly 50% of Halliburton's revenue, heightened pressure is on management to grow its international business.

All told, while management has done an excellent job navigating the brutal oil services industry, which has been marred by weak prices and soft rig counts, growth has nonetheless been hard to come by. However, that didn't stop me from assigning a $50 target on the stock back in August when shares traded around $46 a share. This is even though the company was coming off a quarter during which revenue grew just 1% year-over-year, the worst of the Big Three, including Baker Hughes (BHI).

Even so, what I noticed then was that unlike both rivals, Halliburton showed plenty of strength in international markets, which grew 14% year over year and 8% sequentially in the July quarter. Fast-forward four months later, the Street has finally caught on as shares of Halliburton are now trading at around $55 per share, or roughly 20% higher than my initial target. And following the company's solid third-quarter earnings report, I don't see anything standing in the way of $65 per share. Plus, this time it is the company, not the Street, that is raising expectations.

I've heard some analysts describe Halliburton's third-quarter results as "so-so" on the basis of a $60 million shortfall in revenue. But with results already in hand from Schlumberger and Baker Hughes, I was quite impressed with Halliburton's performance, both on a relative and absolute basis. First, although revenue did miss Street estimates, the 5% year-over-year should be taken in the context of the meager 1% growth in the July quarter.

Again, this is another example of how the Street's expectations have consistently been -- in my mind -- entirely irrational. It should have come as no surprise that the revenue miss, which was due to ongoing weakness in North America, was again the focal point. This has been the case for the past couple of quarters. Although the 1.6% growth was a disappointment, management made up for this with an 18% increase in operating income.

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