HAL Surges 11% In A Single Week, Should You Buy The Stock?

We believe there are several things to fear in HAL stock given its overall Weak operating performance and financial condition. This is aligned with the stock’s Low valuation because of which we think it is Fairly Priced. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $21 Bil in market cap, Halliburton provides products and services to the energy industry, including production enhancement, drilling fluid systems, performance additives, completion fluids, solids control, and specialized testing equipment.

[1] Valuation Looks Low

This table highlights how HAL is valued vs broader market. For more details see: HAL Valuation Ratios

[2] Growth Is Very Weak

• Halliburton has seen its top line grow at an average rate of 9.2% over the last 3 years
• Its revenues have fallen -4.1% from $23 Bil to $22 Bil in the last 12 months
• Also, its quarterly revenues declined -5.5% to $5.5 Bil in the most recent quarter from $5.8 Bil a year ago.

This table highlights how HAL is growing vs broader market. For more details see: HAL Revenue Comparison

[3] Profitability Appears Moderate

• HAL last 12 month operating income was $3.4 Bil representing operating margin of 15.4%
• With cash flow margin of 16.1%, it generated nearly $3.6 Bil in operating cash flow over this period
• For the same period, HAL generated nearly $1.9 Bil in net income, suggesting net margin of about 8.4%

This table highlights how HAL profitability vs broader market. For more details see: HAL Operating Income Comparison

[4] Financial Stability Looks Strong

• HAL Debt was $8.6 Bil at the end of the most recent quarter, while its current Market Cap is $21 Bil. This implies Debt-to-Equity Ratio of 39.9%
• HAL Cash (including cash equivalents) makes up $2.0 Bil of $25 Bil in total Assets. This yields a Cash-to-Assets Ratio of 8.0%

[4] Downturn Resilience Is Weak

HAL has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• HAL stock fell 45.8% from a high of $42.97 on 8 June 2022 to $23.31 on 26 September 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 17 October 2023
• Since then, the stock increased to a high of $43.26 on 19 October 2023 , and currently trades at $25.00

 
2020 Covid Pandemic

• HAL stock fell 81.8% from a high of $25.39 on 6 January 2020 to $4.61 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 15 October 2021

 
2008 Global Financial Crisis

• HAL stock fell 75.0% from a high of $53.91 on 1 July 2008 to $13.46 on 20 November 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 7 July 2011

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read HAL Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. 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.