Can Microsoft’s Cloud Technology Boost Halliburton’s Margins?

by Trefis Team
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Halliburton Company
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Since 2017, Microsoft’s stock (NASDAQ: MSFT) has more than doubled in value supported by strong revenue growth and expanding margins while Halliburton’s stock (NYSE: HAL) has consistently trended downward due to weak benchmark prices and shrinking margins. In July 2020, Halliburton partnered with Microsoft and Accenture to migrate Halliburton’s existing data centers to cloud and enhance digital offerings. Due to low oil demand and expectations of relatively stable benchmark prices in the coming years, oil & gas producers are focusing on operational and capital efficiency. Thus, Halliburton is improving its product offerings according to client requirements. Moreover, the company slashed its capital expenditure by 50% (y-o-y) in 2020 and plans to increase asset productivity by augmenting its solutions business in 2021. While Microsoft’s cloud business has been the key driver of double-digit investor returns in the past few years, will the digital shift improve Halliburton’s profitability in the long run? Trefis compares the recent historical stock price trends of Halliburton and Microsoft in an interactive dashboard analysis, HAL Stock Has 51% Chance Of A Decline Over The Next Month After Declining 1.2% In The Last 5 Days. 

Halliburton received multiple digital transformation projects during the pandemic

In August 2020, Thailand’s PTT Exploration and Production awarded Halliburton a contract to implement digital transformation and enhance efficiency and production at its four offshore fields. In February 2021, Kuwait Oil Company awarded a similar contract to optimize and implement intelligent work processes to improve asset productivity.

Halliburton’s Landmark Software and Services product line, which specializes in exploration, drilling, and production software and data management services, provides diverse production solutions to upstream oil companies. Apart from Landmark Software, the company’s Testing & Subsea and Project Management product line specializes in reservoir optimization and associated technologies to resolve challenges throughout an oilfield lifecycle.

Will software solutions generate higher margins and provide double-digit growth to Halliburton stock?

Supported by Intelligent Cloud and Productivity & Business Process segments, Microsoft’s revenues surged by 30% from $110 billion in 2018 to $143 billion in 2020. Thus, the company’s stock more than doubled from $100 in 2017 to $214 in 2019 – propelled by a 5-percentage improvement in net margin. Moreover, the company’s Intelligent Cloud segment is expected to remain the key driver of top-line growth in the coming years.

Halliburton provides technological solutions to upstream oil & gas companies including drilling, completion, and production services. The 5-year strategic agreement with Microsoft and Accenture is likely to augment Halliburton’s software solutions business with cloud technology. The company plans to strengthen its product offerings as remote operations and analytics are key customer demands. Since 2017, Halliburton’s revenues have observed a moderate single-digit growth while its adjusted net margin decreased from 5.2% in 2017 to 4.8% in 2019.

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