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Bear of the Day: Halliburton (HAL)

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There’s hope that the Fed can spark a market-wide rally today, but with fresh economic uncertainties are clearly still weighing on global investors. With that said, it feels prudent to avoid stocks with their own company- and industry-specific headwinds right now. One such example is Halliburton (HAL - Free Report) .

Halliburton is one of the world’s largest providers of products and services to the energy industry. It currently has 14 product service lines, including pipeline services, production solutions, and several drilling-related services.

HAL is sporting a Zacks Rank #5 (Strong Sell) and has tumbled more than 35% in the past six months. Most recently, management warned of a slowdown in the Permian Basis that will cause damage to Q4 earnings. The company said that transportation bottlenecks in the oil-rich region have forced domestic producers to cut down on their spending.

Moreover, oil prices crashed to a one-year low on Tuesday amid growing concerns on the demand side. Domestic producers are now operating at razor-thin margins, so there could be increased pressure to reduce spending in the near future. HAL remains heavily levered to changes in the overall energy price environment, and recent volatility in that world will cause even more headaches for the stock.

These price headwinds add to a longer list of problems for Halliburton, including the failure of its proposed merger with Baker Hughes that is still causing problems for its balance sheet. The deal was called off in early 2016, forcing Halliburton to book $3.5 billion in termination fees—one of the largest of these charges in U.S. corporate history.

Halliburton is now facing a stretched balance sheet. At the end of the most recent quarter, the company had approximately $2.06 billion in cash/equivalents and $10.42 billion in long-term debt, representing a debt-to-capitalization ratio of 53.6%. This is more than double its industry’s average of 24.0%.

Investors should have more questions about the company’s valuation, too. HAL has a modest “C” grade in the Value category of our Style Scores system, which points to potential weaknesses in key value metrics. Notably, its P/B ratio of 2.8 is a significant premium to the industry’s 0.8 average, and its P/S of 1.1 is pricey compared to the industry’s 0.6.

Typically we suggest investors looking at this specific industry move their search elsewhere. Unfortunately, the “Oil And Gas - Field Services” group is in the bottom 32% of the Zacks Industry Rank, and good options look sparse right now. A lot of the companies in this industry are going to be facing the near-term price headwinds that HAL is seeing, and that means volatility for the lot of them.

Nevertheless, a few names from the group stick out right now. Unit Corporation (UNT - Free Report) , an E&P and drilling company, has a Zacks Rank #1 (Strong Buy) and a Value grade of “A.” Natural gas compression company Archrock (AROC - Free Report) is #2 (Buy) ranked an also has an “A” grade for Value.

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