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Weatherford's New CEO A Strong Positive, But Challenges Remain

HAL, WFRD | March 7, 2017

Judson Bailey of Wells Fargo says Weatherford International Plc (NYSE: WFT)’s appointment of Halliburton Company (NYSE: HAL) executive Mark McCollum as CEO is a strong positive given McCollum’s reputation for execution, organization and cost discipline as these three were “just what the doctor ordered.”

“As such, we expect investors (as well as ourselves) to begin to seriously evaluate the potential for WFT to produce materially higher margins through the next cycle – a scenario that we believe was never seriously considered under the prior management team,” Bailey wrote in a note.

Divestments To Continue

That said, the analyst expects Weatherford to continue with its divestiture strategy for its U.S. pressure pumping business and international land rig business.

“We believe WFT is now willing to accept realistic bids for those businesses, and that a divestment of its pressure pumping business could be announced at any time for $750 million to $1 billion while its land rig business could be eventually sold for roughly $400–$600 million,” Bailey highlighted.

Challenges Remain

However, the analyst said the company’s leverage remains high and debt reduction will be a key priority, with the above potential divestitures should help to a certain extent. The analyst said a high leverage would hamper the company’s efforts to capitalize on recovery in activity in the United States and international over the next few years.

Bailey has a Market Perform rating on Weatherford shares, with a valuation range of $6–$8.

At last check, shares of Weatherford surged 14.60 percent to $6.75.

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