Weatherford Weathers Downturn on International Strength

Weatherford International (WFT), which recently moved its corporation to Switzerland from Bermuda, is a leading manufacturer and provider of equipment and services used in drilling, completion and production of oil and natural gas wells. The company carries out its operations along four geographical segments: North America, Latin America, Europe/West Africa/CIS and Middle East/North Africa/Asia.

Weatherford’s large North American presence has become a liability in the current environment of tentative natural gas prices. But the company has a growing international footprint, particularly in the Eastern Hemisphere. International markets accounted for a little over 50% of total revenue earned last year, a ratio that is expected to materially increase this year due to the current slowdown in North American activity levels.

The slowdown in international activity levels is expected to be much less pronounced (an approximately 10% drop is expected from the 2008 levels), which works to Weatherford’s advantage given its heavy international expansion efforts over the last few years. In fact, the company expects that all of its growth in 2009 will come from the international markets with a combined double-digit growth rate. In particular, Weatherford remains well positioned in Mexico and Iraq, both of which are expected to be major oilfield service growth markets in the coming years.

Additionally, we believe that the company’s North American presence — which may be a drag over the next few quarters due to the region’s weak fundamentals — should nevertheless provide plenty of exposure to the region’s eventual recovery. Therefore, in spite of the stock’s impressive run up in the last three months (the stock price has soared almost 80% to the current level of $19.56), we believe that this oilfield service name still offers upside from current levels.

As such, our Buy recommendation remains unchanged with a 12-month target price of $30.

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