On November 07, 2023, Halliburton Co (HAL, Financial) closed at a price of $37.95, reflecting a day's loss of -3.97%. The stock has also seen a 3-month loss of -3.81%. With an Earnings Per Share (EPS) of 2.91, one may question if the stock is fairly valued. This article aims to answer this question by providing a comprehensive valuation analysis of Halliburton Co. The analysis will delve into the company's business operations, financial strength, growth, and profitability, among other factors.
A Snapshot of Halliburton Co
Halliburton Co, one of the world's three largest oilfield service firms, boasts superior expertise across various business lines, including completion fluids, wireline services, cementing, and many more. It is the largest pressure pumper in North America and has been a leading innovator in hydraulic fracturing over the past two decades. Despite a market cap of $34 billion and sales of $22.90 billion, the question remains if the company's stock, at its current price of $37.95 per share, is fairly valued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. It is believed that the stock price will most likely fluctuate around this line.
According to GuruFocus Value calculation, Halliburton Co (HAL, Financial) appears to be fairly valued. The stock's long-term return is likely to be close to the rate of its business growth, given its fair valuation.
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Financial Strength of Halliburton Co
Investing in companies with poor financial strength involves a higher risk of permanent capital loss. Therefore, it is crucial to carefully assess a company's financial strength before deciding to buy its stock. A great starting point for understanding a company's financial strength is looking at its cash-to-debt ratio and interest coverage. Halliburton Co has a cash-to-debt ratio of 0.23, which is worse than 66.51% of 1036 companies in the Oil & Gas industry. The overall financial strength of Halliburton Co is ranked 6 out of 10 by GuruFocus, indicating that its financial strength is fair.
Profitability and Growth of Halliburton Co
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Halliburton Co has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $22.90 billion and Earnings Per Share (EPS) of $2.91. Its operating margin is 17.56%, which ranks better than 64.84% of 987 companies in the Oil & Gas industry. Overall, the profitability of Halliburton Co is ranked 7 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth, according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Halliburton Co is -4.4%, which ranks worse than 77.34% of 865 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 45.5%, which ranks better than 80.46% of 829 companies in the Oil & Gas industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Halliburton Co's return on invested capital is 17.83, and its cost of capital is 10.36.
Conclusion
In summary, the stock of Halliburton Co (HAL, Financial) shows every sign of being fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 80.46% of 829 companies in the Oil & Gas industry. To learn more about Halliburton Co stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
