Sell Halliburton to Save Your Money

Halliburton (HAL) announced first quarter ended March 31, 2016 total revenue of $4.2 billion, down 18 percent sequentially from $5.1 billion in fourth quarter of 2016 and down 41 percent year-over-year from $7.1 billion in first quarter of 2015.

Halliburton declared first quarter of 2016 adjusted operating income of $225 million or $0.07 per diluted share, down 52 percent sequentially from $473 million or $0.31 per diluted share in fourth quarter of 2015 and down 68 percent year-over-year from $699 million in first quarter of 2015.

The upstream products and services provider 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, negatively impacting the energy companies and thus, lesser investments into purchase of new drilling and exploration equipment.

In bad shape 

Total revenue for first quarter of 2016 has dipped below the first quarter of fiscal year 2011 level but, somewhat better than the peer’s average which has declined further.
Moreover, Halliburton has continued to illustrate superior year-over-year return on average capital employed compared to its peers. Internationally as well, Halliburton has depicted notable operational results compared to the peer’s average which highlights significant operational efficiency of the company.

The global franchise of Halliburton is operational in 70 countries with 16 research centers and including, the key continents of North America, Middle East/Asia Pacific, Europe/Africa/CIS and Latin America. Revenue and operating income for Middle East/Asia Pacific declined sequentially 15% and 27% respectively, driven by weaker drilling activities witnessed across the continent. Halliburton’s revenue fell 17 percent sequentially in North America and due to lowered activity all through the U.S., mainly the strategic pressure development services coupled with a decline in conclusion tools trading in the Gulf of Mexico.

Revenue and operating income for Latin America fell 22% and 51% respectively, primarily due to lowered activity in Colombia, Brazil and Mexico. Revenue and income from operations in Europe/Africa/CIS fell 19% sequentially and declined 54% respectively due to a notable, seasonal activity minimization in the North Sea, coupled with weaker drilling activity and trading of completion tools in Nigeria and Angola.

The extremely well-diversified operational base of Halliburton has primarily allowed the company to successfully thrive in the globally tough commodity demand and pricing environment while allowing it to grow free cash flows which is in line with its continued commitment to deliver attractive shareholder returns and achieve record profitability.

Strategic focus  

Mature Fields is believed to be a poorly-served market that is further supporting the falling curve. Halliburton is strategically collaborating with its key customers and expanding through consulting-enabled mature field services while uniquely deploying infill and multilateral drilling technologies. Halliburton has significant growth opportunities in the consulting-led projects at Mature Fields including, management of asset block and delivering services ranging from strategic asset planning till production operations at Humapa in Mexico, a notable multibillion-dollar growth opportunity across nine key expansion fields and Halliburton having contracted to allow for completion, drilling and consulting services at Igapo in Ecuador and finally, re-exploring Bayan gas and oil deposits at far East Malaysia.

The latest continuing index of the rig count for the period of 2014 till now is continuing to witness significant downfall of nearly -79% and not yet achieved its base as against the last three key cycles that have already illustrated the index of North America rig count which is somewhat better than the recent downfall. Going forward, Halliburton is adopting a strategic market focus of executing through process excellence, innovation, and collaboration for creating superior value for its customers and key stakeholders. At present, Deepwater depicts 11% of present worldwide production with 66% of explorations, by volume, executed during the previous five years.

The unique growth strategy of Halliburton to maximize its existing production through strategic process optimizations and leveraging advanced drilling and explorations technologies is believed to minimize the company’s core cash burn rate which would otherwise be higher if the company plans for new exploration activities which is in line with its continued commitment to sustain profitable operations while delivering attractive shareholder returns.

Conclusion

Overall, the investors are advised to “Hold” their position in Halliburton Company considering its significant long-term growth prospects but, currently weaker financial position with huge total debt of $15.39 billion against smaller total cash position of $9.66 billion only, restricting the company to continue with its daily operations profitably. The profit margin of -11.74% signifies no profit but loss. The PEG ratio of -31.42 seems disappointing and indicate no near-term growth but decline.
Published on Jun 14, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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