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On Mar 29, Zacks Investment Research downgraded oilfield services behemoth Halliburton Co. (HAL - Analyst Report) to a Zacks Rank #3 (Hold).

Why the Downgrade?

Houston, Texas based Halliburton continues to be plagued by sluggish North American operations, a spike in the costs for guar gums, and potential liability exposure to the Deepwater Horizon rig disaster.

Detailed Analysis

The North American land rig count may plateau in the near future as growth in highly-productive horizontal drilling has led to a natural gas supply overhang and relatively weak natural gas prices in the U.S. market. This is likely to be only partially offset by the continued growth of oil- and liquids-rich reservoirs. A slowdown in U.S. land drilling will impair Halliburton’s business.

A substantial relief in the cost for guar gum – a key constituent of the company’s market-leading hydraulic fracturing ('fracking') procedure – is not expected until well into 2013.

We remain concerned over the ensuing uncertainty regarding Halliburton’s potential liability exposure to the Deepwater Horizon rig disaster. A final assessment report issued by the federal government in September 2011 blamed the company for the ‘poor cement job’ that allowed the oil/gas to burst through the reservoir and reach the rig, causing the explosion. We believe this has raised the probability for Halliburton to share in at least a portion of the spill liabilities with British energy giant BP plc (BP - Analyst Report).

Stocks That Warrant a Look

While we expect Halliburton to perform in line with its peers and industry levels in the coming months and advice investors to wait for a better entry point before accumulating shares, one can look at Compressco Partners L.P. (GSJK - Snapshot Report) and Exterran Partners L.P. (EXLP - Snapshot Report) as good buying opportunities. These energy equipment makers – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.

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