Oakmark's Bill Nygren Comments on Halliburton
Halliburton is the world’s second-largest oil service contractor. It has a high and growing market share in most of its business lines, and its markets are growing. In 2011, the stock peaked at $58. Its price has fallen due to concerns about a short-term spike in raw materials costs and slower growth in North American pressure pumping, an important market for Halliburton. The shale drilling boom in North America has been especially good for providers of pressure pumping services, a market Halliburton has dominated. The recent slowdown in pressure pumping growth was caused by energy producers responding to lower natural gas prices. If gas prices increase, as the futures market anticipates, drilling in oil shale fields should rebound, and demand for pressure pumping services should improve. While we wait, Halliburton is enjoying growth outside the United States, where it gets almost half of its revenue. Further, Halliburton is a strong free cash producer with an already strong balance sheet. After final settlement of its Macondo liabilities, which we expect to occur early this year, we believe the company will return more cash to its shareholders. Halliburton sells for about 8 times anticipated 2014 earnings plus amortization. Last year, it sold for more than twice that multiple. We believe a mid-teens price/earnings ratio would be more appropriate. We were pleased to have the opportunity to add this industry leader on terms that appear so attractive.
From Bill Nygren's fourth quarter letter.