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Why Halliburton (HAL) Is an Attractive Oilfield Service Stock
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Even as fears revolving around high inflation and slowing growth somewhat cloud the outlook for Oil/Energy, it has remained the best S&P 500 sector this year. The space has generated a total return of some 68% in 2022 against the S&P 500’s loss of 16%.
Apart from a positive fundamental picture, the sector is enjoying support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity.
While oil has pulled back from those lofty levels, with the conflict showing no sign of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group OPEC agreeing on a production curtailment mean that the commodity has got enough reasons to stay elevated in the near-to-medium term.
Naturally, some stocks have been impressive since the start of the year. These also have strong earnings trends to back their moves.
One such company is Halliburton Company (HAL - Free Report) . It is one of the largest oilfield service providers in the world, offering a variety of equipment, maintenance, and engineering and construction services to the energy, industrial and government sectors. The company operates in over 80 countries. Founded in 1919, Halliburton employs more than 40,000 people and operates under two main segments: Completion and Production, and Drilling and Evaluation.
Let’s discuss the reasons that make Halliburton an attractive pick:
Solid Rank and VGM Score
Halliburton is a Zacks Rank #1 (Strong Buy) stock in the Oil and Gas - Field Services industry, which carries a Zacks Industry Rank #25 — placing it in the top 10% of more than 250 Zacks industries. In addition to the favorable rank, HAL enjoys a Zacks Growth Style Score of B, Momentum of B, and an overall VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), offer the best upside potential.
Earnings Beat Estimtes in Q3
HAL posted excellent Q3 results on Oct 25, with EPS of 60 cents coming in ahead of the Zacks Consensus Estimate of 56 cents and more than doubling from the year-earlier bottom line of 28 cents. The firm’s outperformance reflected stronger-than-expected profit from both its divisions and came in spite of the company’s exit from Russia. Total revenues came in at $5.4 billion, going past the Zacks Consensus Estimate of $5.3 billion and 38.8% above the year-ago level.
Current Levels Are a Buying Opportunity
After HAL shares bottomed out (around $4.25) during the start of the pandemic, they have turned around in style. Halliburton peaked in June at nearly $44 but has fallen to under $37.50 since then. Despite this drop, the stock is still up 63.8% this year, while the markets have gone lower. This powerful uptrend during a bear market indicates that investors should take advantage of the discounted levels and start looking at the name to see if it’s right for their portfolio. With the company experiencing the best market conditions in years, we believe that the HAL stock has enough firepower left to keep chugging along.
Image Source: Zacks Investment Research
Analyst Estimates Raised
HAL’s earnings revisions have also trended in the right direction over the last 60 days, as analysts have consistently taken up their numbers. As a matter of fact, the Zacks Consensus Estimate for Halliburton’s 2022 bottom line has increased from a profit of $2.01 to a profit of $2.09 during this timeframe, while next year’s estimate has seen a rise from a profit of $2.77 per share to $2.94.
Fundamental Strength
While Halliburton has operations in more than 70 countries, it generates 45% of its revenues in North America. This outsized exposure to the region, especially through its market-leading pressure pumping operations, nicely positions the company to take advantage of the rising U.S. land drilling activity, tightening supply/demand fundamentals and pricing momentum.
The successful and expanded use of digital technologies has helped Halliburton enhance performance and lower operational risk. Simply put, it has allowed the company to remove equipment and/or crew from the site, substituting with software solutions. With fewer personnel on location, jobs being monitored offsite using remote data center management tools, and the replacement of expensive hardware with software solutions, the operator is able to reduce costs and capital investment. In other words, the increasing cloud-based data flow between the site and the back office translates into expanded margins for oilfield service providers like Halliburton.
Bottom Line
The current scenario makes this a solid time to consider buying Halliburton. Yes, there are some apprehensions that the company may feel the reverberating impacts of the inflation-triggered cost increases. But with international activity set to gain momentum throughout the globe, HAL’s state-of-the-art portfolio, selective contract wins and balanced geographic mix will help it maximize profits from this upcycle.
The Houston-based company’s cash flow generation capabilities and balance sheet strength should also ensure increased shareholder returns. All these should support higher price points for its shares.
Other Energy Stocks to Buy
Along with Halliburton, investors interested in the energy sector might look at Helmerich & Payne (HP - Free Report) , HF Sinclair (DINO - Free Report) and Nine Energy Service (NINE - Free Report) , each currently sporting a Zacks Rank #1.
Helmerich & Payne: HP beat the Zacks Consensus Estimate for earnings in three of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 124.2%, on average.
Helmerich & Payne is valued at around $5.7 billion. HP has seen its shares gain 100.3% in a year.
HF Sinclair: HF Sinclair is valued at some $12.8 billion. The Zacks Consensus Estimate for DINO’s 2022 earnings has been revised 14.3% upward over the past 60 days.
HF Sinclair, headquartered in Dallas, TX, delivered a 9.1% beat in Q3. DINO shares have surged 90.2% in a year.
Nine Energy Service: Nine Energy Service is valued at some $280.1 million. The 2022 Zacks Consensus Estimate for NINE indicates 121.4% year-over-year earnings per share growth.
Nine Energy Service, headquartered in Houston, TX, delivered a 137.5% beat in Q3. NINE shares have surged 500.7% in a year.
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Why Halliburton (HAL) Is an Attractive Oilfield Service Stock
Even as fears revolving around high inflation and slowing growth somewhat cloud the outlook for Oil/Energy, it has remained the best S&P 500 sector this year. The space has generated a total return of some 68% in 2022 against the S&P 500’s loss of 16%.
Apart from a positive fundamental picture, the sector is enjoying support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity.
While oil has pulled back from those lofty levels, with the conflict showing no sign of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group OPEC agreeing on a production curtailment mean that the commodity has got enough reasons to stay elevated in the near-to-medium term.
Naturally, some stocks have been impressive since the start of the year. These also have strong earnings trends to back their moves.
One such company is Halliburton Company (HAL - Free Report) . It is one of the largest oilfield service providers in the world, offering a variety of equipment, maintenance, and engineering and construction services to the energy, industrial and government sectors. The company operates in over 80 countries. Founded in 1919, Halliburton employs more than 40,000 people and operates under two main segments: Completion and Production, and Drilling and Evaluation.
Let’s discuss the reasons that make Halliburton an attractive pick:
Solid Rank and VGM Score
Halliburton is a Zacks Rank #1 (Strong Buy) stock in the Oil and Gas - Field Services industry, which carries a Zacks Industry Rank #25 — placing it in the top 10% of more than 250 Zacks industries. In addition to the favorable rank, HAL enjoys a Zacks Growth Style Score of B, Momentum of B, and an overall VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), offer the best upside potential.
Earnings Beat Estimtes in Q3
HAL posted excellent Q3 results on Oct 25, with EPS of 60 cents coming in ahead of the Zacks Consensus Estimate of 56 cents and more than doubling from the year-earlier bottom line of 28 cents. The firm’s outperformance reflected stronger-than-expected profit from both its divisions and came in spite of the company’s exit from Russia. Total revenues came in at $5.4 billion, going past the Zacks Consensus Estimate of $5.3 billion and 38.8% above the year-ago level.
Current Levels Are a Buying Opportunity
After HAL shares bottomed out (around $4.25) during the start of the pandemic, they have turned around in style. Halliburton peaked in June at nearly $44 but has fallen to under $37.50 since then. Despite this drop, the stock is still up 63.8% this year, while the markets have gone lower. This powerful uptrend during a bear market indicates that investors should take advantage of the discounted levels and start looking at the name to see if it’s right for their portfolio. With the company experiencing the best market conditions in years, we believe that the HAL stock has enough firepower left to keep chugging along.
Image Source: Zacks Investment Research
Analyst Estimates Raised
HAL’s earnings revisions have also trended in the right direction over the last 60 days, as analysts have consistently taken up their numbers. As a matter of fact, the Zacks Consensus Estimate for Halliburton’s 2022 bottom line has increased from a profit of $2.01 to a profit of $2.09 during this timeframe, while next year’s estimate has seen a rise from a profit of $2.77 per share to $2.94.
Fundamental Strength
While Halliburton has operations in more than 70 countries, it generates 45% of its revenues in North America. This outsized exposure to the region, especially through its market-leading pressure pumping operations, nicely positions the company to take advantage of the rising U.S. land drilling activity, tightening supply/demand fundamentals and pricing momentum.
The successful and expanded use of digital technologies has helped Halliburton enhance performance and lower operational risk. Simply put, it has allowed the company to remove equipment and/or crew from the site, substituting with software solutions. With fewer personnel on location, jobs being monitored offsite using remote data center management tools, and the replacement of expensive hardware with software solutions, the operator is able to reduce costs and capital investment. In other words, the increasing cloud-based data flow between the site and the back office translates into expanded margins for oilfield service providers like Halliburton.
Bottom Line
The current scenario makes this a solid time to consider buying Halliburton. Yes, there are some apprehensions that the company may feel the reverberating impacts of the inflation-triggered cost increases. But with international activity set to gain momentum throughout the globe, HAL’s state-of-the-art portfolio, selective contract wins and balanced geographic mix will help it maximize profits from this upcycle.
The Houston-based company’s cash flow generation capabilities and balance sheet strength should also ensure increased shareholder returns. All these should support higher price points for its shares.
Other Energy Stocks to Buy
Along with Halliburton, investors interested in the energy sector might look at Helmerich & Payne (HP - Free Report) , HF Sinclair (DINO - Free Report) and Nine Energy Service (NINE - Free Report) , each currently sporting a Zacks Rank #1.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Helmerich & Payne: HP beat the Zacks Consensus Estimate for earnings in three of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 124.2%, on average.
Helmerich & Payne is valued at around $5.7 billion. HP has seen its shares gain 100.3% in a year.
HF Sinclair: HF Sinclair is valued at some $12.8 billion. The Zacks Consensus Estimate for DINO’s 2022 earnings has been revised 14.3% upward over the past 60 days.
HF Sinclair, headquartered in Dallas, TX, delivered a 9.1% beat in Q3. DINO shares have surged 90.2% in a year.
Nine Energy Service: Nine Energy Service is valued at some $280.1 million. The 2022 Zacks Consensus Estimate for NINE indicates 121.4% year-over-year earnings per share growth.
Nine Energy Service, headquartered in Houston, TX, delivered a 137.5% beat in Q3. NINE shares have surged 500.7% in a year.