Halliburton Downgraded to Sell Due to Weak Crude Prices

On Dec 30, Zacks Investment Research downgraded the oilfield services provider Halliburton Company (HAL - Analyst Report) to a Zacks Rank #4 (Sell).

Why the Downgrade?

The oil market has been over supplied, especially in the face of lackluster global demand. Plentiful supply of shale oil owing to a shale revolution in the U.S. has dragged down the WTI crude prices significantly below the $100 per barrel threshold since mid 2014.

On top of that, at the recent meeting in Vienna, OPEC decided not to cut oil production. Instead, the cartel raised its production ceiling. Saudi Arabia-led OPEC explained that if it is the only block to curb output when other players continue to produce at their own lofty levels, it will end up losing market share.

This early-December decision dealt a huge blow to the energy market and dragged West Texas Intermediate (WTI) crude price further to below the $40-per-barrel mark. Even yesterday, oil closed at $37.87 per barrel.

Let’s go back to the story of how the weak oil hurt Halliburton. With the low crude and almost no chances of the commodity’s recovery in the near future, most drillers have decided to reduce their capital spending. Hence, Halliburton, which supports the drilling players in setting up oil wells, is also anticipated to earn less.

Overall, we can say that there is little chance of Halliburton outperforming the broader U.S. equity market in the coming one to three months. 

Stocks to Consider

One can consider better-ranked players in the energy sector like Matrix Service Company (MTRX - Snapshot Report), Energy Transfer Equity, L.P. (ETE - Snapshot Report) and Ocean Rig UDW Inc. (ORIG - Snapshot Report). Each of these stocks sports a Zacks Rank #1 (Strong Buy).