After declining more than 55% over the trailing 12 months, does The Halliburton Company (NYSE:HAL) have fundamentals strong enough to be a potential buy with a positive outlook for share price recovery.
While some indicators suggest that the Halliburton stock might have the potential to rebound over the upcoming 12 months, at this time, only investors with the lowest risk aversion will even consider this stock. Based on past share price performance the outlook appears bleak. In addition to declining more than 55% over the trailing 12 months, the share price dropped 73% over the past five years.
However, while the share price declined in the second half of 2018, the company’s 2018 year-end financial results revealed the company’s highest revenue in the last five years. Additionally, after three consecutive years of earnings losses, Halliburton returned to profitability in 2018. So far in 2019, the profitability continues. The company has also exceeded analysts’ earnings expectations for both periods in 2019.
While the 50-day moving average remains below the 200-day moving average, analysts seem optimistic on the stock’s prospects over the next one year. Nearly 90% of the analysts currently covering the stock — 34 out of 38 — have a favorable outlook. Of the 34 analysts with a favorable outlook, approximately two-thirds recommend a “Buy” (23) with the remaining third (11) carrying a “Strong Buy” recommendation. Only three analysts currently have a “Hold” recommendation and there is one “Underperform” recommendation as well.
Analysts’ current target prices range from low of $24 to the high of $43, with an average target price of $31.92. Therefore, the current $18 share price has 33% of room on the upside before it reaches even the lower limit of the analysts’ current target price range. Furthermore, the current share price has to gain 77% before it reached the average target price. Even if the current share price doubles to $36 on positive earnings reports and additional future contracts awards, that share price would be only 12% above the current analysts’ average target price and still nearly 20% below the high target price of $43.
After beating earnings expectation in the first-quarter 2019, Halliburton delivered another strong financial report for its second quarter on July 22, 2019. The report revealed total revenues of $5.9 billion, which was slightly lower (3.5%) than the same period last year but higher than first-quarter revenues. A 13% revenue decline of the North American segment drove the overall decline despite an average increase of 12.5% across the remaining regions.
The company also reported total operating income of $303 million for the second quarter. Net income of $75 million was 50% lower than the $150 million figure from the same period last year and equivalent to $0.09 earnings per share (EPS). However, on an adjusted basis, the net income of $303 million was 33.6% higher than the adjusted income of $201 million one year ago. The $0.35 adjusted earnings per diluted share were 52% higher than the $0.23 EPS from the second quarter last year. Additionally, the current adjusted EPS beat analysts’ second-quarter earnings expectations of $0.30 by nearly 17%.
As already indicated, the share price’s past performance is not one of the reasons to consider the Halliburton stock as an investment opportunity. Unless, investors optimistic on the company’s near-term outlook consider the current share price drop as discount to take a position and lock in higher long-term returns if the stock rallies from the current low levels.
The share price entered the trailing 12 months on a downtrend that began in May 2018. After continuing the decline for two weeks, the share price surged briefly to reach its 52-week high of $42.14 on October 9, 2018, which was 3.5% higher than the share price level from the beginning of the trailing 12-month period. However, driven by the downward pressure from the overall market correction in the last-quarter 2018, the share price resumed its downtrend for the remainder of the year.
The share price reversed trend with the overall markets in late December and recovered some of its losses by mid-April 2019. However, the recovery did not continue, and the share price began declining again. By August 27, 2019, the share price had reached its 52-week low of $17.31. At the end of the next trading session on August 28, the share price had gain 3.5% to close at $18.00. As of 1:00 p.m. on August 29, 2019, the share price has been trading at $18.55 indicating additional gains.
The Halliburton Company (NYSE:HAL)
Headquartered in Houston, Texas, and founded in 1919, the Halliburton Company provides a range of services and products to oil and natural gas companies worldwide. The company’s Completion and Production segment offers production enhancement services, including stimulation and sand control services, as well as cementing services, such as well, well casing, and casing equipment bonding. Additionally, this segment also provides completion tools that offer downhole solutions and services, including well completion products and services, liner hanger and sand control systems. Furthermore, this segment offers oilfield completion, production and downstream water and process treatment chemicals and services, as well as electrical submersible pumps, progressive cavity pumps and artificial lift services.
The Drilling and Evaluation segment provides drilling fluid systems, performance additives, completion fluids, solids control, specialized testing equipment, waste management services, drilling systems and associated services. This segment also offers drill bits and services comprising roller cone rock bits, fixed cutter bits, hole enlargement, related downhole tools and services, as well as coring equipment and services. In addition, this segment provides integrated exploration, drilling, and production software, as well as related professional and data management services. Part of this segment’s offerings are also testing and subsea services, as well as project management, consulting, integrated asset management, well control and prevention services.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.