Halliburton: Reasons to Buy

Apart from a possible improvement in the end-market and the focus of Halliburton (HAL) on providing cutting-edge technology, a key factor that has helped the company do well in tough times is its focus on reducing costs. For instance, last quarter, Halliburton comfortably beat the bottom line estimate by posting a profit of $0.07 per share, while Wall Street was anticipating $0.04 per share.

Doing it right

Halliburton meanwhile is focusing on rightsizing the costs structure to moderate the impact of the industry downturn.

For instance, the company during the quarter reduced its headcount by over 6,000 that should lower its G&A expenses going forward. However, this resulted in severance costs relating to termination benefits for the quarter. Additionally, the company during the quarter incurred $538 million of Baker Hughes acquisition-related costs as the company made a reversal of assets held for sale as compared to $39 million of Baker Hughes acquisition-related costs in the first quarter of 2015

As a result of these huge termination benefits and restructuring charges its earnings for the quarter decreased to $0.07 per share as compared to earnings of $0.49 per share in the same quarter a year earlier.

In my view, though its earnings fell for the quarter, it should get better due to the reduction in the head counts as well as the closure of Baker Hughes acquisition related costs. In fact, the company terminated $2.5 billion of debt related to the Baker Hughes transaction that it had issued in the second-half in 2015. In addition to this, the company has significantly lowered its capital expenditure. In fact, its capital expenditure of $850 million represents a slump of 75% as compared to its capital spending in 2014.

More importantly, the company plans to live within its cash flows in 2016 given the ongoing decline in the activity levels. Thus, these cost reduction efforts will enable the company to deliver free cash flow going forward. Its free cash flow for the last reported quarter was negative at $355 million driven by about $250 million of restructuring payments and acquisition -related costs.


Although the market conditions continued to impact the business of Halliburton negatively, its pains of restructuring should be taken into consideration. These efforts will allow the company to improve its top and bottom line performance in the future. Moreover, the company should benefit from the expected recovery in the rig counts that should create significant value for its investors due to its innovative equipment as stated above. So, in my view, Halliburton remains a safe play in the long-run.

Published on Sep 19, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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