What’s Next For Halliburton?

After a 15% decline since the beginning of the year, at the current price of around $30 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 with limited growth prospects in the near term. HAL’s peer SLB stock (NYSE: SLB) is down 14% this year to $44. Halliburton’s share price has been under pressure in recent months, with headwinds in the U.S. and a potential end to OPEC+ supply cuts offsetting strong performance internationally. The company’s exposure to the onshore frac market makes it particularly vulnerable to a weak demand environment in North America (responsible for 43% of total revenues). So far, this has led to an 8% decline in North American revenues (in 9 months of FY 2024) with service company discipline helping to maintain pricing. Halliburton is largely at the mercy of market conditions and the tepid oil price growth is not helping either.

That said, the company continues to increase its exposure to growth areas through internal product development. For example, Halliburton’s artificial lift product line is growing at double the rate of the rest of the business in international markets. Drilling services are another strong point for the company, with Halliburton’s drilling services revenue in the Middle East growing 30% year-over-year (y-o-y). HAL’s Drilling and Evaluation operating margin was up 7% in three quarters of 2024, compared to a 2% decline in the Completion and Production segment during the same period. We expect a similar momentum in Q4 as well.

We forecast HAL’s Revenues to be $23.1 billion for the fiscal year 2024, flat y-o-y. Looking at the bottom line, we now forecast EPS to reach 3.07. Given the changes to our revenues and earnings forecast, we have revised our HAL’s Valuation to $33 per share, based on $3.07 expected EPS and a 10.7x P/E multiple for the fiscal year 2024 – almost 10% higher than the current market price.

The increase in HAL stock over the last 3-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 22% in 2021, 74% in 2022, and -6% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it 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 around rate cuts and multiple wars, 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?

Factors Impacting Oil Price

A stalemate continues to play out in Ukraine’s war entering its second winter. Tensions remain between the U.S. and China, which is the world’s largest oil importer. China’s oil demand has also been declining in the past several months. This year, China’s oil demand growth is expected to be around 180k barrels per day (bpd) from the average growth of one million bpd in the previous years. This was due to factors like economic slowdown and shift to electric vehicles. In addition, the latest battle between Palestinians and Israelis has stoked discord throughout the oil-rich Middle East. While uncertain geopolitical scenarios could lead to higher prices due to tighter supplies, output from the U.S. and other non-OPEC countries like Canada and Brazil has been rising, which is helping to balance the global oil market, limiting the price rise. The International Energy Agency is now forecasting 862k bbl/day oil demand growth in 2024 and 998k bbl/day in 2025. OPEC+ is reportedly considering increasing oil production in December. Production in Libya is also expected to increase after factions in the country reached an agreement to appoint a new central bank governor.

Q3 Snapshot

In Q3, Halliburton’s revenue totaled $5.7 billion (down 2% y-o-y), which was below the analyst estimate of $5.83 billion. The report showed a stabilization in revenue growth despite some significant operational challenges such as cyber incidents and adverse weather conditions. Region-wise, North America saw a 4% sequential decrease in revenue to $2.4 billion, influenced by reduced pressure pumping activities and storm disruptions. On the international front, revenue remained steady at $3.3 billion. The Middle East/Asia region witnessed a 3% revenue increase, spurred by enhanced pressure pumping operations in Saudi Arabia. The company recorded a net earnings per share (EPS) of $0.65, which fell short of the $0.75 forecast.

Halliburton continues to prioritize returns over market share. The company is somewhat protected by the fact that close to 40% of its fleets are e-fleets under multi-year contracts. Since its launch in Q3, it has deployed Auto Frac on 20% of its e-fleets and expects to expand to 50% in Q4. In 2025, the company expects the vast majority of its e-fleets to operate with Auto Frac contracts.

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 11/13/2024
[2] Cumulative total returns since the end of 2016

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