Are Investors Too Optimistic On Halliburton Stock?

HAL: Halliburton logo

The shares of Halliburton (NYSE: HAL) have almost doubled in value since the beginning of the year, pushed by surging benchmark oil & gas prices and the geopolitical uncertainty associated with the Russia-Ukraine war. However, the rig count figures in North America remain 20% lower than pre-pandemic levels. Given the gradual rise in drilling activity across geographies, Halliburton’s revenues in 2022 are likely to be lower than 2019. Thus, Trefis believes that investors seem to be too optimistic on the stock. Our interactive dashboard on Halliburton Earnings Preview highlights the historical trends in revenues, earnings, valuation multiple, and forecast for Q1 2022.

A Quick Look At Halliburton Financial Performance

Before the pandemic, Halliburton’s revenues observed an average growth rate of 15% p.a. from $15.8 billion in 2016 to $22.4 billion in 2019 assisted by rising oil & gas demand and subsequently oil field services. The top line fell sharply to $14.4 billion in 2020 and remained almost flat in 2021. While net-margins have been skewed in recent years due to depreciation and impairment costs, the operating cash margins have ranged within 10-12%. Moreover, the company invests almost half of its operating cash in property, plant & equipment with a quarter in dividends and share repurchases.

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How has HAL stock fared in comparison to the S&P 500?

HAL stock declined from levels of around $21 in February 2020 (pre-crisis peak) to levels of around $5 in March 2020 (as the markets bottomed out), implying HAL stock lost 76% from its approximate pre-crisis peak. With the rising transportation demand and macroeconomic uncertainty due to the Russia-Ukraine war, the stock has almost doubled from pre-crisis levels to $40 and we believe that it is likely to observe a correction as rig count numbers still stand lower. In comparison, the S&P 500 Index first fell 34% as Covid-19 cases accelerated outside China and is currently 30% higher than pre-pandemic levels.

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 Returns Apr 2022
MTD [1]
YTD [1]
Total [2]
 HAL Return 8% 78% -25%
 S&P 500 Return -2% -7% 99%
 Trefis Multi-Strategy Portfolio -1% -9% 259%

[1] Month-to-date and year-to-date as of 4/18/2022
[2] Cumulative total returns since the end of 2016

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