Halliburton’s Fair Value Revised to $54, Results Buoyed by North American Demand

Halliburton (NYSE:HAL) announced its third quarter results yesterday, posting strong growth in North America and Latin America as demand for oilfield services continued to grow despite lower oil prices. The shale gas boom, which has resulted in strong demand for Halliburton’s expertise in unconventional resources, has helped the company grow its revenues from North America by 13% sequentially. ^[1] Even the strong results failed to boost the weak outlook for energy stocks as Halliburton shares fell by almost 8% yesterday. Other oilfield services firms such as Schlumberger (NYSE:SLB) and Baker Hughes (NYSE:BH)) also posted drops exceeding 5%. ^[2] Halliburton, however, remained enthusiastic over the long term prospects of the oilfield services business.

We have revised our price estimate for Halliburton to $54 in light of the lower than expected growth in international markets and weak near-term outlook. The new estimate still represents a 55% premium over the current market price.

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North America Continues to Deliver

Shale exploration activity in the Bakken, Eagle Ford, and Permian Basin areas and seasonal recovery in Canada helped Halliburton post a quarterly operational income exceeding $1 billion for the first time in its history. The company continued to benefit from the shift towards shale oil, natural gas liquids and enhanced oil recovery operations as the slow recovery in gas prices pushed exploration firms to focus on liquids.

Halliburton also continued to maintain a positive outlook for exploration activity in North America despite the recent declines in oil prices and turbulence in international markets. Company executives expressed hope that oil directed activity and the presence of large international players and credit availability will sustain the North American cycle over a long period of time.

International Growth

On the international front, Halliburton posted better results in Latin America where its margins grew from 12% to 17%  and its revenues from the region grew at 17% sequentially as activity picked up in Brazil and Mexico. The company continued to be affected by the political situation in Libya and delays in Iraq. However, the oilfield services provider aims to double its rig count to 6 by the end of the year in Iraq. Growth was limited in Europe Africa and the CIS as well.

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1. Halliburton Announces Third Quarter Earnings, Halliburton [↩]
2. Concerns over outlook hit Halliburton shares, FT [↩]