Following Halliburton Company’s ( HAL - Analyst Report ) second-quarter earnings beat and the easing costs for guar gums – a key component in the company’s market-leading ‘hydraulic fracturing’ procedure – we have recalibrated our investment thesis on the oilfield services behemoth to Neutral from Underperform.

Houston-based Halliburton recently reported better-than-anticipated June quarter results on the back of higher activity in the international markets. Earnings per share from continuing operations came in at 80 cents, beating the Zacks Consensus Estimate of 75 cents and flat year over year.

Revenues of $7.2 billion were 21.9% greater than that achieved during the second quarter of 2011 and also surpassed the Zacks Consensus Estimate of $6.9 billion, as sales increased across the company’s business units.

Following a tough few months, where the cost for guar gum went through the roof in North America due to the growing use of hydraulic fracturing in the extraction of oil and natural gas liquids from shale, prices have now recovered. This is expected to favorably impact the company’s second half 2012 results.

Guar gum, a bean grown mostly in India, apart from being a dairy products thickener is also a main ingredient of the hydraulic fracturing (or fracking) process, which is used to extract natural gas by blasting underground rock formations with a mixture of water, sand and chemicals.

Halliburton also remains in excellent financial health with some $2.2 billion in cash and a debt-to-capitalization ratio of around 25%. This helps the second largest member of the oilfield services contingent after Schlumberger Limited ( SLB - Analyst Report ) to capitalize on investment opportunities and offers option to make strategic acquisitions, thereby further improving growth visibility.

Moreover, at current multiples, which are significantly lower than peers, we have a difficult time justifying an Underperform rating.

While being incrementally more positive on Halliburton, the increased pricing pressure in its North American operations keeps us on the sidelines. Our new long-term Neutral recommendation is supported by a Zacks #3 Rank (short-term Hold rating).