Halliburton Is Well Positioned to Dominate North American Energy Boom - TheStreet

NEW YORK (TheStreet) -- The correction in oil prices has weighed heavily on the oil and gas equipment service industry, sending the sector down 4.91% over the past month, according to Morningstar.

Halliburton (HAL) - Get Report , whose shares have fallen 19.1% over the past month, has been one of the harder hit companies. The stock is down 28% since July. Shares closed Tuesday at $53.26, up 1.66%. But even with the modest gain, Halliburton remains one of the cheapest oil servicers among its peer group on a price-to-earnings ratio basis, which has now fallen to 13.38.

That P/E is 5.3 points and 4.23 points lower than Schlumberger (SLB) - Get Report and Baker Hughes (BHI) , respectively. It's also 6.9 points lower than the average P/E ratios of companies in the S&P 500 (SPY) - Get Report , according to CNN Money.

Halliburton seems ready to make up the difference, helped by strength in North America. Goldman Sachs, which has a "buy" rating on the stock and a $65 target, agrees. In a research note Monday, Goldman cited Halliburton's valuation. From Tuesday's close, this suggests a potential premium of 22%. Goldman Sachs saw stocks with exposure to North America's land-based oil and gas production in a better position to weather the falling oil prices.

Halliburton has made North America its focus. While speaking to analyst about his company's third-quarter performance, CEO Dave Lesar noted, "Service intensity levels surged to unprecedented levels.

"Completion volumes per well were up more than 50 percent compared to the third quarter of last year." Lesar expects this activity level to continue.

It's been tough to ignore the geopolitical issues facing the industry, particularly from the standpoint of project delays and the challenge in getting government approvals for contracts. Lesar doesn't expect these headwinds to persist. He says, "Our strategy is working well and we intend to stay the course. Our leadership in North America positions us well to take advantage of this quickly evolving market."

Second only to Schlumberger among the world's largest oilfield services companies by revenue, Halliburton was tops in the third quarter in terms of North American revenue growth, which spiked roughly 21.7% year over year, besting Schlumberger's 18% year over year growth. Baker Hughes came in third, growing third-quarter North America revenue by 10% year over year.

This is important because North America is where Halliburton generates roughly 54% of its worldwide revenue, as of the most recent quarter. The company also expects to see 11% compounded annual growth in the deepwater well service market by 2020. This is a market that is expected to grow toward $100 billion in the next six years.

In addition, with drilling activity expected to remain robust in North America, according to Bloomberg, Halliburton's exposure gives it an advantage when it comes to offsetting the global slowdown in energy spending.

Schlumberger, by contrast, has the lowest exposure to North America among the big four oilfield services companies, including Weatherford International (WFT) - Get Report . Baker Hughes' North America exposure also exceed 50%. Its third-quarter growth rate trails Halliburton by 12 percentage points, which suggests possible loss of market share. Halliburton CEO Lesar highlighted the company's 9% sequential growth in North American revenue, which delivered a 15% sequential jump in profits.

As a sign of confidence, the company hiked its dividend by 20%, which is double what the company paid two years ago. This is on top of buying back $300 million worth of its stock during the quarter.

All told, Halliburton is showing more confidence in its business and long-term outlook than the market. Halliburton is well-positioned to withstand any potential weakness in global slowdown in energy spending. And smart investors looking for exposure to energy should consider this name.

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

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.