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Bull of the Day: Halliburton (HAL)

Halliburton HAL reported Q4 adjusted net income per share of 72 cents last week, surpassing the Zacks Consensus Estimate of 67 cents and well above the year-ago quarter profit of 36 cents (adjusted). The outperformance reflects stronger-than-expected profit from both its divisions.

Revenues of $5.6 billion were 30.5% higher than the corresponding period of 2021. North American revenues rose 46.4% year over year to $2.6 billion, while revenues from Halliburton’s international operations were up 19.1% from the year-ago period to nearly $3 billion.

This growth is noteworthy since HAL has outsized exposure to the North American land drilling market.

In more good news for investors, Halliburton raised its quarterly dividend by 33.3% to 16 cents per share (or 64 cents per share annualized).

The Big Three in Oil & Gas Services

Halliburton was the last of the "Big Three" oil services firms to report fourth-quarter results after rivals SLB SLB and Baker Hughes BKR came out with contrasting releases last week.

SLB, the largest oilfield contractor, announced fourth-quarter 2022 earnings of 71 cents per share (excluding charges and credits), which beat the Zacks Consensus Estimate of 69 cents. SLB recorded total revenues of $7.9 billion, outpacing the Zacks Consensus Estimate by 0.7%.

SLB's strong quarterly earnings resulted from strong activities in land and offshore resources in North America and Latin America. The company’s board approved a quarterly cash dividend of 25 cents per share, indicating a 43% increase from the last paid dividend.

Baker Hughes reported Q4 adjusted earnings of 38 cents per share, missing the Zacks Consensus Estimate of 41 cents due to higher costs and expenses.

BKR's revenues for the October-December period totaled $5.9 billion, also underperforming the Zacks Consensus Estimate by 2.6%. The negatives were partially offset by higher contributions from the Oilfield Services and Equipment business unit.

Inside Halliburton's Segments

Operating income from the Completion and Production segment was $659 million, 89.9% above the year-ago level of $347 million and ahead of the Zacks Consensus Estimate of $629 million. The division’s performance was buoyed by improving completion tool sales as well as cementing activity globally, to go with the strength in the pressure pumping business in North America onshore.

Drilling and Evaluation unit profit surged from $269 million in the fourth quarter of 2021 to $387 million in the corresponding period of 2022. The division also managed to beat the Zacks Consensus Estimate of $364 million. This was primarily due to a pickup in international drilling-associated services, testing services, and year-end software sales in, as well as increased project management activity in Mexico.

Management Commentary & Outlook

Halliburton — the world’s biggest provider of hydraulic fracking — noted that the strong fourth-quarter (and 2022) performance is a thumbs-up to its solid execution and strategic priorities in North America as well as international markets. Looking ahead, the company expects this recipe to drive strong margins home and away throughout this year and beyond. Looking ahead, Halliburton sees international region to deliver profitable growth, while optimizing value in its core north American market.

Overall, Halliburton believes that its smart strategy, digital leadership, capital efficiency, and the global presence points to a strong outlook. The Houston-based company’s cash flow generation capabilities and balance sheet strength should also ensure increased shareholder returns, as evinced by its recent dividend hike.

Bullish Analyst Reactions

In the past week since the company report, we've seen these very positive reactions to the HAL business...

Barclays analyst J. David Anderson raised his price target on Halliburton to $58 from $54 and kept an Overweight rating on the shares. Addressing the elephant in the room, he said that "despite strong Q4 results and a convincing outlook on 2023 for the Big 3 energy service names, the share underperformance suggests investors are questioning how much is already in the stocks."

With the cycle entering a "new, sustained growth phase" combined with margin expansion from pricing and operating leverage, the analyst now sees more than 30% upside in the shares.

HSBC analyst Abhishek Kumar raised the firm's price target on Halliburton to $57 from $44 and kept a Buy rating on the shares as the company's 2023 outlook looks solid with growth expected both from the U.S. and international.

Susquehanna analyst Charles Minervino raised his price target on Halliburton to $57 from $51 and kept a Positive rating on the shares. The analyst said the company should continue to see double-digit revenue growth in its North America segment due to pricing and service intensity and highlighted both the 33% dividend bump and the commitment to return 50%+ of FCF to shareholders through additional share repurchases in 2023.

Bottom-Line on HAL

Halliburton is a stable cash-gushing commodity play with 30%+ upside. While the overall outlook for US corporate earnings remains subdued, the data from across the globe looks significantly less recessionary than just a quarter ago so we want to find ways to participate in the positive elements of the turn. HAL shares should find good support at $39.50, with continued buyers coming in at the 50-day near $38.

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