Halliburton: Buy Despite the Oil Weakness

Halliburton (HAL) continues to perform well on the stock market. In fact, the company has better recovery and performance metrics as compared to its peer Schlumberger. Schlumberger has lost about 10% of its market value since the beginning of the year, while Halliburton shares are down just 2% year-to-date. Moreover, Halliburton has slightly better recovery rate than Schlumberger after the fall in late August. Going forward, Halliburton can get better due to its smart moves.

What next?

Halliburton reported earnings of $0.31 per share on the revenue of $5.58 billion for the third-quarter 2015.

This was slightly better than consensus estimated earnings of $0.28 per share on the revenue of $5.65 billion for the quarter. More importantly, the company posted operating income of $506 million, down only $137 million from the $643 million posted last year.

So, this type of earnings performance before the acquisition of Baker Hughes clearly reflects its ability to perform well during the industry downturn. In fact, Halliburton is expected to create more than $2 billion in synergy through this acquisition per year. Moreover, the company has reduced its costs significantly and recently announced additional $200 million reduction in capital expenditure. It now expects to limit its capital expenditure to $2.4 billion for the year as compared to $3.3 billion in capital expenditure in 2014. This represents a 27% decline in its capital expenditure year-on-year.

More importantly, the company has reduced its head count. In the first nine months Halliburton has reduced its workforce by over 21% in order to better align its workforce to current activity levels across the world.

The international business will be a driver

Halliburton continues to focus on international business that is offsetting the decline in activity levels in North America. Its international revenue declined only 5%, while operating income margins remained unchanged to second quarter levels. This is a pretty good improvement, as its peer Schlumberger saw a larger decline in the international revenue sequentially as well as on a year-over-year basis.

In fact, its international margins have improved despite drop in its international revenue by over 11% so far this year, reflecting 200 basis points of improvement as compared to Schlumberger.

This impressive performance in the international business can be attributed to its cost cutting initiatives that more than offset the impact of price negotiations with its customers in the first half. More importantly, the company expects the international business to remain resilient going into 2016 with improvement in land based activities. However, it expects its North America business to slow down in the neat-term, as it expects the rig counts to further drop by 15% to 20% sequentially this year.


Halliburton remains pretty cheap as it trades at a trailing P/E of 29.22 and a forward P/E of 27.95. This indicates better earnings results in the future. So, it will be a good idea to go long Halliburton.

Published on Nov 4, 2015
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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