What Are The Trends Driving Our $30 Price Estimate For Halliburton?

by Trefis Team
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Halliburton Company
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We are reducing our price estimate for Halliburton (NYSE:HAL), the second-largest oilfield services provider, from about $40 per share to around $30 per share. While oil prices have posted some gains this year, the company could face weaker long-term revenue growth in its bread-and-butter North American market, where investors have been calling for oil and gas companies (Halliburton’s customers) to slash investment and boost returns. While pricing in North America is improving, margins are unlikely to return to levels seen pre-2014. This could be an issue for Halliburton, as it derived about 60% of revenue from North America in 2018, with a bulk of it coming from unconventionals. Below, we take a look at the near-term outlook for the company.

View our interactive dashboard analysis on What Are The Trends Driving Our $30 Price Estimate For Halliburton?  In addition, you can see more of our data for Energy Companies here.

North American Market Could See Weaker Growth As Tight Oil Investments Slow Down

  • There are multiple trends playing out in the N.A. market.
  • While demand took a YoY hit in Q1, due to off-take capacity issues in the Permian Basin, the largest shale field, things could pick up.
  • For instance, Halliburton has indicated that pricing was likely to improve in the near-term, after 4 years of headwinds.
  • However, longer-term growth could be weaker, as upstream players have been facing investor pressure to cut back on their spending, after years of strong investments in shale while working within their cash flows in order to boost shareholder returns.

Higher Activity In Asia Could Drive Middle East/Asia

  • Segment Revenues from the Middle East/ Asia segment could also trend higher to about $5 billion, driven by the Asia Pacific region.
  • The broader international operations also stand to benefit from capacity tightness, which could bode well for pricing.
  • This segment accounted for 19% of the company’s 2018 revenues.

Latin America Could Benefit From Stronger Activity In Mexico And Argentina

  • We expect Halliburton’s Latin American business to rebound with revenues growing to about $2.5 billion by 2020, after about 3 years of weakness.
  • Growth is likely to be driven by stronger demand from Mexico and Argentina.
  • This segment accounts for about 9% of Halliburton’s total revenue.

Rising Rig Count In Europe/ Africa/ CIS

  • Activity in Europe and Africa has been on the rise, with the average rig count in these regions up by about 20% year-over-year over the first 4 months of the year.
  • We project that Halliburton’s revenues from this region will grow to about $3.3 billion by 2020.
  • This segment accounted for about 12% of 2018 revenue.

Estimating Halliburton’s EPS And Price Estimate

  • We estimate that Halliburton’s total revenues will grow to about $26 billion by 2020.
  • However, margin growth could remain limited, in our view, due to the weaker long-term outlook in North America.
  • Our $30 price estimate for Halliburton values the company at about 15x projected 2020 EPS of about $2 per share.

 

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