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Halliburton (HAL) Down 17.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Halliburton (HAL). Shares have lost about 17.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Halliburton due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Halliburton Q1 Earnings In Line, Sales Top Estimates

Halliburton reported in-line first quarter profit on robust international activity, offsetting pricing pressure in the North American business.

The oilfield services company saw its adjusted net income (excluding impairments and other charges) come in at 23 cents per share, same as the Zacks Consensus Estimate.

However, the bottom line was below the adjusted earnings of 41 cents in the year-earlier quarter. Adjusted net income reported by Halliburton was $201 million, well below the $358 million for the same period last year.

Meanwhile, revenues of $5.7 billion were approximately flat with the year-ago quarter and scraped past the Zacks Consensus Estimate by 3.5%. North American revenues were down 6.9% year over year to $3.3 billion. Revenues from Halliburton’s international operations rose 11% from the year-ago period to $2.5 billion.

Management’s Outlook

The world’s biggest provider of hydraulic fracking noted that North American activity levels in the first quarter improved slightly year over year but encountered pricing pressure throughout the period. Importantly, Halliburton suggested that the worst is over for the domestic market, as far as pricing weakness is concerned.  

Meanwhile, Halliburton is witnessing broad-based, steady recovery in its international business. The company anticipates its international revenue to grow at a high single-digit rate in 2019, with further improvement next year.

In response to the changing market dynamics, the company is looking to continue its disciplined approach to capital spending, improve efficiency, develop sophisticated technologies and generate strong cash flow from operations.

Segmental Performance

Operating income from the Completion and Production segment was $368 million, 26.4% below the year-ago level of $500 million. The division’s performance was affected by pricing declines in U.S. land stimulation services.

However, the segment operating income bettered our consensus estimate of $335 million. The outperformance was largely the result of strong domestic artificial lift and cementing activity, increased stimulation activity in Latin America, and higher completion tool sales in Middle East/Asia and Latin America.

Meanwhile, Drilling and Evaluation unit profit fell from $188 million in the first quarter of 2018 to $123 million in the corresponding period of 2019. The segment income was also below the Zacks Consensus Estimate of $146 million. The underperformance was on account of costs associated with the mobilization of a number of overseas drilling projects, lower project management activity and weak pricing in the Middle East.

Balance Sheet

Halliburton’s capital expenditure in the first quarter was $437 million. As of Mar 31, 2019, the company had approximately $1.4 billion in cash/cash equivalents and $10.3 billion in long-term debt, representing a debt-to-capitalization ratio of 51.7%.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Halliburton has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Halliburton has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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