Is Halliburton a Waste of Money?

Halliburton (HAL) announced fourth quarter ended December 31, 2015 total revenue of $5.1 billion, down 9 percent sequentially from $5.6 billion in third quarter of 2015 and down 42 percent year-over-year from $8.8 billion in fourth quarter of 2014.

Halliburton declared fourth quarter of 2015 net loss of $28 million or $0.03 of diluted loss per share compared to net loss of $54 million or $0.06 of diluted loss per share in third quarter of 2015 and net income of $901 million or $1.06 per diluted share in fourth quarter of 2014.

The oil and gas equipment products and services company reported continued sequential and year-over-year decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment coupled with the rising exploration costs, eating into the margins of the company.

What’s hurting?

The global oil demand is developing slowly and steadily as the general economic conditions improve and world recovers from the ongoing slowdown.
Halliburton is looking for opportunities to capture global energy demand and evaluating whether it is well-prepared to flourish in the currently oversupplied business environment. Actually, the growth in petroleum supply and supply of other key liquid fuels was double that of usage while, major firms have leveraged robotics and digitization to draw greater volumes and small investments.

Going forward, the key investment analysts project a rosy picture for better commodity demand with key drilling activities estimated to enhance during the second half of fiscal year 2016. Halliburton also estimates a near-term significant recovery in the international oil prices with a majority of the producers about instantly reinvesting their notable cash flows in the development of new wells. The near-term commodity pricing recovery is primarily related to the small-cycle nature of key shale.

The international recovery in commodity demand and pricing is expected to continue at an accelerated pace moving into 2016 and ahead which is believed to deliver long-term profitability for the company and thus, benefit the key stakeholders.

What next?

The global oil and gas supply is continuously outpacing their demand in the recent past with continued year-over-year decline in the benchmark crude prices, eating into the margins of the key energy mining companies and forcing them to delay major capital expenditures, minimize non-core expenses while sustaining healthy cash flows to continue with the daily operations profitably. The worldwide oil supply is expected to surpass demand by nearly 1.5 mb/d during the beginning of 2016.

The energy mining equipments manufacturer reported significant charges linked to the severance expenditures and major asset write-offs of about $192 million or $0.22 per diluted share during the fourth quarter of 2015 as against $257 million or $0.30 per diluted share during the third quarter of 2015.

Halliburton is trying to minimize the global impact of currently continuing slowdown by reducing the non-core expenses, selling-off the non-profitable operations while investing in key growth initiatives to maximize investment returns.

The company strategically issued $7.5 billion total amount of senior notes in five steps to maximize shareholder returns and utilize total proceeds of the transaction for usual corporate purposes that includes paying in cash for a portion of Halliburton’s awaiting capturing of Baker Hughes.

Conclusion

Overall, the investors are advised to “Hold” their position in Halliburton Company considering its significant growth prospects and the currently weaker company’s balance sheet with significant total debt of $15.35 billion against weaker total cash position of $10.08 billion only, restricting the company to continue with its daily operations profitably. The profit margin of -2.84% is disappointing and indicate no profit but loss. The PEG ratio of -3.06 signifies no growth but decline.
Published on Feb 9, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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