Despite the recent downswing in the stock price of Halliburton Co. (HAL), we remain optimistic about the firm’s near-term prospects. The second-largest member of the oilfield services contingent behind Schlumberger Ltd. (SLB) has seen its share price fall approximately 35% since the beginning of July, as oil prices declined to around $80 per barrel. However, considering Halliburton’s attractive fundamentals and positive outlook, we believe it is well positioned going forward.
We like Halliburton’s leadership status in the global oilfield services market. We also appreciate its broad and technologically-complex product/service offerings as well as its very strong relationships with both publicly-traded and national oil companies worldwide. The company has been benefiting from increased activity in the unconventional oil and gas shale plays in North America, which have more than made up for the drop in deepwater Gulf of Mexico (“GoM”) activity and disruptions in North Africa.
As reinforced by results in the last few quarters, the all-important North American activity levels (to which Halliburton is heavily exposed through its market-share-leading pressure-pumping business) are showing signs of strength and sustainability. Margins in most basins now appear to be rapidly gaining steam, as the industry looks to balance supply growth with recovering hydrocarbon demand.
Additionally, Halliburton remains in excellent financial health with about $1.4 billion in cash and a debt-to-capitalization ratio of around 25%. This helps Halliburton to capitalize on investment opportunities and offers options to make strategic acquisitions, thereby improving growth visibility.
The planned acquisition of San Angelo, Texas-based privately held oilfield service company Multi-Chem Group LLC is expected to further help Halliburton to expand the breadth of its services and augment its average revenue per rig. At the same time, it will be able to serve and fulfill the demands of a large number of customers.
As such, we believe the company is favorably positioned to continue accelerating revenue and earnings growth over the next few quarters. Halliburton currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.
Houston, Texas-based Halliburton is one of the largest oilfield service providers in the world, offering a variety of equipment, maintenance, and engineering and construction services to the energy, industrial, and government sectors. The company operates under two main segments: Completion and Production, and Drilling and Evaluation.