Despite scandal, Halliburton shares keep rising
NEW YORK (AP) — As allegations of widespread wrongdoing at oil-services giant Halliburton mount, investors don’t seem to care. In fact, they’ve been bidding the stock way up.
That’s right, Halliburton’s shareholders haven’t been fazed by the fast-growing laundry list of accusations targeting the Houston-based company for everything from price gouging to bribery.
What a change from the recent past. Think back to the scandals at Enron, WorldCom and others — as soon as any bad news hit, investors cashed out fast, well before the dust settled.
Since the Bush administration took over the White House nearly four years ago, Halliburton has been in the spotlight. That’s due in part to its past ties with Vice President Dick Cheney, who was the company’s chairman from 1995 to 2000.
But the controversy surrounding this company has intensified recently, largely due to its role in the rebuilding of Iraq.
There have been questions raised over its receipt of a $2.26 billion no-bid contract to rebuild Iraq’s oil industry. It is also facing allegations that it overcharged by millions of dollars for its services, including for feeding troops and delivering fuel.
Its Kellogg, Brown & Root engineering and construction unit reimbursed the Pentagon $6.3 million after disclosing that two employees had taken kickbacks from a Kuwaiti subcontractor in return for work providing services to U.S. troops in Iraq.
Outside of Iraq, the company’s alleged involvement in the payment of $180 million in bribes to win a contract in the 1990s for a natural gas project in Africa is under investigation by U.S., French and Nigerian officials. Halliburton is also close to wrapping up a major asbestos case, in which it would pay over $4 billion in cash and stock to settle plaintiffs’ claims.
Still, with all this to weigh, Halliburton’s investors remain decidedly bullish. Its stock, which now trades around $31 a share, is up about 20 percent since the start of the year and has gained about 34 percent in the last six months.
It’s an interesting approach that shareholders are taking. They appear willing to separate Halliburton’s problems from other recent scandals, which have focused more on issues like executive looting of corporate funds and earnings manipulation.
They are betting that most of Halliburton’s troubles won’t have much, if any, affect on its business or seriously crimp the bottom line, so their holdings won’t get hurt.
“The headlines tell one story about Halliburton, but you look deeper into things, you can see that these issues might not be material to the business,” said John Kartsonas, an oil and gas analyst at Standard & Poor’s.
Instead, their buying has been fueled by hopes of a bright future.
For instance, with energy prices remaining at elevated levels, oil and gas companies will likely boost their capital spending in the coming year. That could greatly benefit Halliburton, which derives around 60 percent of its revenues and 80 percent of its operating income from its energy equipment and services division, Kartsonas said.
Those expectations for strong growth are reflected in the optimism coming from Wall Street. About three-quarters of the analysts covering Halliburton have revised their first-quarter and year-end earnings estimates by more than 3.5 percent over the last month and rate the stock with either a buy or strong buy, according to independent research firm StarMine.
That said, this chapter for Halliburton is far from over, and it’s too soon to know whether any of these allegations will have a lasting impact. Sure, a few million dollars in fines does little to a company that brought in revenues of $16 billion last year, but at this point there is no telling how everything will play out.
Even the company has started to acknowledge the potential effects should some of these allegations turn more serious.
The company, in federal securities filing in late January, said that it had engaged outside counsel to investigate the alleged payments for the African natural gas project, and said that “if illegal payments were made, this matter could have a material adverse effect on our business and results of operations.”
And how did investors react to this news? They kept buying.
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Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org