What To Expect From Halliburton’s Q3 After Stock Up 10% This Year?

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Trefis
HAL: Halliburton logo
HAL
Halliburton

Halliburton stock (NYSE: HAL), an energy company organized into the exploration, development, and production of oil and natural gas, is scheduled to report its fiscal third-quarter results on Tuesday, October 24. We expect HAL’s stock to see little to no movement due to revenues and earnings matching market expectations in its third quarter. In Q2 2023, HAL’s North American revenue fell 2% quarter-over-quarter to $2.7 billion, driven primarily by decreased stimulation activity in U.S. land drilling. This segment accounts for 55% of the company’s total revenues. So, it will be interesting to see how this division’s revenue fares in the upcoming third-quarter results. Halliburton generated significant returns in 2022 but we do not expect another stellar year in 2023, but rather a moderate one as commodity prices were surprisingly lower than expected at the beginning of this year. However, crude oil picked up on expectations of tighter supply ever since Saudi Arabia and Russia extended their voluntary output cuts of a combined 1.3 million barrels per day (bpd) to the end of the year 2023 – in order to support prices.

Among the most significant risks to oil markets since Russia’s invasion of Ukraine last year is the latest geopolitical tension between Hamas and Israel. There have not yet been any impacts on oil flows due to the conflict, but there could be major repercussions if it escalates. If the U.S. steps up sanctions against Iran, this would likely further strain an already tight oil market. That said, Halliburton has a strong position to benefit from high crude oil prices. The growing tight supplies due to geopolitical uncertainty and the soaring demand from the reopening of China’s economy could likely bode well for energy prices by the end of 2023.

HAL stock has seen extremely strong gains of 110% from levels of $20 in early January 2021 to around current levels, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. HAL is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 21% in 2021, 72% in 2022, and 10% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 12% in 2023 (YTD) – indicating that HAL underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Energy sector including XOM, CVX, and COP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could HAL face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

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Our forecast indicates that HAL’s valuation is $43 per share, which is almost in line with the current market price. Look at our interactive dashboard analysis on HAL Earnings Preview: What To Expect in Fiscal Q3? for more details.

(1) Revenues expected to match consensus estimates

Trefis estimates HAL’s Q3 2023 revenues to be around $5.9 billion, in line with the consensus estimate. Halliburton saw its revenues jump 14% year-over-year (y-o-y) to $5.8 billion in Q2. The company’s Q2 International revenue increased 7% q-o-q to $3.1 billion, led by a 9% improvement in Latin America to $994 million, where the company cited increased pressure pumping improved wireline activity in Argentina, and increased activity across multiple product service lines in Mexico. By segment, Completion and Production revenue rose 2% q-o-q to $3.5 billion, driven by increased completion tool sales globally and higher artificial lift activity in North America, while Drilling and Evaluation revenue gained 2% to $2.3 billion, primarily due to an increase in fluid services globally, and higher drilling activity in the Western Hemisphere and Saudi Arabia. For 2023, we forecast HAL’s Revenues to be $23.5 billion, up 16% y-o-y.

2) EPS is also likely to come in line with consensus estimates

HAL’s Q3 2023 earnings per share (EPS) is expected to come in at 77 cents per Trefis analysis, in line with the consensus estimate. The company’s reported Q2 net income jumped more than 5x to $610 million, or $0.68/share, from $117 million, or $0.12/share, in the year-earlier quarter.

(3) Stock price estimate in line with the current market price

Going by our HAL’s Valuation, with an EPS estimate of around $3.08 and a P/E multiple of 13.8x in fiscal 2023, this translates into a price of $43, which is almost in line with the current market price.

It is helpful to see how its peers stack up. HAL Peers shows how Halliburton’s stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

 Returns Oct 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 HAL Return 7% 10% -20%
 S&P 500 Return 0% 11% 91%
 Trefis Reinforced Value Portfolio -1% 22% 528%

[1] Month-to-date and year-to-date as of 10/20/2023
[2] Cumulative total returns since the end of 2016

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