Halliburton Stock Down 8% This Year, What’s Next?

After an 8% decline since the beginning of the year, at the current price of around $34 per share, we believe Halliburton stock (NYSE: HAL), an energy company organized into the exploration, development, and production of oil and natural gas – has upside potential in the longer run. In comparison, HAL’s peer SLB stock (NYSE: SLB) is down 10% this year to $47. It is anticipated that Halliburton’s services will continue to be in high demand at current oil prices ($84 at the time of writing) and that the market for high-quality services and equipment will remain tight, allowing the company to continue increasing average revenue per rig. The supply cuts from Saudi Arabia and Russia, and persistent demand in Europe (the third largest oil consumer after the U.S. and China), have helped build a more supportive environment for oil prices. The company expects growth in its international business (that accounts for ~56% of total business) in 2024 while North American revenues likely will stay flat due to weak demand for drilling. HAL achieved record margins in both its divisions in Q1 2024 (20% operating margin for Completion and Production segment, and 16% for Drilling and Evacuation) and we expect a similar momentum in the upcoming quarters as well.

HAL stock has seen extremely strong gains of 75% from levels of $20 in early January 2021 to around $34 now, vs. an increase of about 45% for the S&P 500 over this roughly 3-year period. However, the increase in HAL stock has been far from consistent. Returns for the stock were 21% in 2021, 72% in 2022, and -8% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that HAL underperformed the S&P in 2021 and 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Energy sector including XOM, CVX, and COP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could HAL face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Halliburton’s Q1 2024 adjusted net income grew to $679 million, or $0.76 per share, from $651 million, or $0.72 per share, in the year-earlier quarter, driven by sustained growth in the international markets. The company’s top line grew 2% y-o-y to $5.8 billion, as International revenue jumped 12% y-o-y to about $3.3 billion. Still, North American revenue fell 8% y-o-y to $2.5 billion, due to lower pressure pumping services on U.S. land and reduced wireline activity throughout the region. By geography, HAL’s International revenue growth of 12%, was led by a 6% growth in the Middle East/Asia, a 10% rise in Europe/Africa, and a 21% growth in Latin America. By segment, Completion & Production revenues fell slightly y-o-y to $3.3 billion and Drilling & Evaluation revenues jumped 7% y-o-y to $2.4 Billion.

For FY 2024, Halliburton expects its North American business will deliver flat revenues and margins compared to last year despite lower activity levels. In the international division, the market remains tight for equipment and people, and therefore, the company expects to see margin expansion over last year. Halliburton also expects the international revenue will rise at a low double-digit percentage rate in 2024.

We forecast HAL’s Revenues to be $24.6 billion for the fiscal year 2024, up 7% y-o-y. Looking at the bottom line, we now forecast EPS to reach 3.38. Given the changes to our revenues and earnings forecast, we have revised our HAL’s Valuation to $42 per share, based on $3.38 expected EPS and a 12.5x P/E multiple for the fiscal year 2024 – almost 26% higher than the current market price.

It is helpful to see how its peers stack up. HAL Peers shows how HAL’s stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 7/2/2024
[2] Cumulative total returns since the end of 2016

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