Zacks_Analysts' Blog : Weatherford Remains Neutral - Analyst Blog

We reiterate our long-term Neutral recommendation on Weatherford International Ltd. (WFT), a leading oilfield services company with operations in North America, Latin America, Europe/West Africa/CIS, and Middle East/North Africa/Asia.

We believe Weatherford has superior growth potential given the successful implementation of key business strategies (Eastern Hemisphere expansion, technology growth and supply chain cost reduction), along with more focused investment in research and development. It also has a strong background in analysis and provides various horizontal drilling techniques that give it an advantage over its peer group.

As Weatherford strengthens its foothold in the North American market, it is expected to reap benefits from rising consumer demand and market share gains. Overall, we think Weatherford is better positioned than many of its peers in the oilfield service space, given its strong international growth prospects.

The company’s second quarter earnings outperformance, despite a weak performance in Canada, also speaks in its favor. This explains Weatherford’s upbeat outlook for 2011 as reflected by a 500 basis points rise in its revenue growth estimate for the year.

Weatherford also foresees a seasonal recovery in Canada, as well as gradual improvements in North America and internationally throughout 2011. The company expects volumes and pricing to increase in the international markets for the coming quarters. This will augment margins for the full year.

However, Weatherford’s debt-heavy balance sheet, its weak free cash flow and competition from larger peers are causes for concern. The company’s debt-to-capitalization ratio of 38.7% is significantly higher than its peer group average. The company also faces threats from Schlumberger Limited (SLB) and Baker Hughes Incorporated (BHI).