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. Last Updated: 07/27/2016

Halliburton's Iraq Work Booms, Yet Stock Falters

NEW YORK -- Halliburton Co.'s business may be booming in Iraq thanks to reconstruction efforts, but the small profit margins there and lingering asbestos liabilities are a drag on the stock, analysts said.

So far, the Houston company -- once headed by U.S. Vice President Dick Cheney -- has won $1.7 billion in Iraq-related contracts.

Halliburton's KBR engineering and construction division has been awarded a $705 million contract for oil field infrastructure repairs. It has also been awarded a Logistics Civil Augmentation Program contract, estimated at more than $900 million, to build base camps and provide logistical services like delivering mail and providing hot meals.

"The dollar values are huge," said Representative Henry Waxman, a California Democrat who has reviewed the LOGCAP contract breakdown.

But while the KBR unit is expected to win millions of dollars more in additional contracts, the stock has not outperformed the broader market.

The shares, which surged in May after U.S. President George W. Bush declared an end to major combat operations in Iraq and said reconstruction of the nation was underway, are down nearly 4 percent since mid-June.

The S&P 500 index is up slightly over the same period.

"While the dollar amount of the contracts is large, historically the profits off of them have been very small," said Jim Carroll, portfolio manager of the Loomis Sayles Value Fund which owns shares of Halliburton.

"I don't know what the situation is in this particular contract, but I think investors have a fair amount of skepticism about hundreds of millions of dollars in profits."

He added that Halliburton's operating profit margins in the engineering and construction division are generally in the low single digits, as opposed to the low double-digit margins of its larger oilfield services business.

"They'll be damned lucky to earn 5 percent [of the contract values in profit]," Jim Wicklund, an analyst at Banc of America Securities, noted. He has a "buy" rating on the company and does not own any of its shares.

At the same time, Halliburton's asbestos liabilities have weighed down the stock.

The second-largest oilfield services company, behind Schlumberger Ltd., agreed late last year to a $4 billion cash-and-stock deal to settle 200,000 asbestos lawsuits.

But since then, Halliburton has asked for and received extensions and last month said it needed even more time to document claims and file prepackaged Chapter 11 bankruptcy plans for its DII Industries LLC unit and KBR.

The latest postponement came as U.S. Congress debates a plan that would limit the impact of asbestos litigation on companies and would reduce Halliburton's asbestos costs by an estimated $3.5 billion.

Wicklund said uncertainty is the top issue for the stock.

"You don't know how much it's going to cost them, how much insurance is going to pay them back, when they're going to get it done," he said.

"And until they get it done, there's the question if they'll get it done."