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Why Is Soros Long Halliburton?

December 07, 2013 | About:
fedezaldua

Fede Zaldua

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Among George Soros' new investments I found Halliburton (HAL) and it's not tough to guess why the billionaire investor decided to go long on the company's shares. Halliburton is a serial out-performer and has a history of beating its self-imposed tough targets. Even when the company is up by almost 46% year-to-date, it might still make sense to own the shares if you are a longterm oriented investor. You will not receive a great dividend from this company – its cash dividend yield is just 1.2% – but you should get great growth in the coming few years.

Halliburton's Ambitious 2016 Goals

After beating its 2010 to 2013 goals this year, Halliburton has set for itself another stream of ambitious, although still reachable, goals for 2016. Halliburton aims to meet four key objectives. First, the company wants to grow its deep water business at a faster rate than its competitors without lowering margins. Hence, the company would be gaining market share without affecting its return profile in a high-growth market.

Secondly, Halliburton says that it can grow its works on mature fields by as much as 300% by 2016. The company wants to make its mature fields segment a $9 billion a year business which looks achievable as most companies are suffering from a growing proportion of fields in decline – for example, Royal Dutch Shell (RDS.A) has 72.7% of its fields in decline.

Thirdly, Halliburton wants to keep its leadership in unconventionals through its new geo-science platform, CYPHER. Last but not least, the company wants to increase its returns on capital employed to 20% from the current 11%.

Halliburton is pointing its cannons towards the right places. Mature fields, unconventionals and deep water are poised to keep growing fast within the U.S. and internationally. Moreover, the short term also looks compelling for the company as Halliburton offers great leverage to the improving North American drilling market. With the seasonal recovery in U.S. rig count beginning, margins should improve. On top of this, the steady offshore rig count growth in the Gulf of Mexico should also benefit Halliburton in the coming few quarters.

Valuation Looks Fair

Halliburton now trades at 11.7 times 2014 earnings and 5.9 times EV/EBITDA. One of its closer competitors in the oil and gas services industry, Schlumberger (SLB) sells for 15.1 times 2014 earnings and 8.6 EV/EBITDA. Its true that Halliburton's third quarter did not impress investors at all. As a matter of fact, the stock reacted negatively when results were released despite the small EPS beat the company achieved – $0.83 versus $0.82 analysts were expecting. The stock's reaction was related to lower than expected growth (above all in Latin America) and smaller than expected margins in North America. That said, I believe those issues – slower growth and declining margins – were given by temporary issues such as the flooding in Colorado which is not an operational issue but a weather-related issue. Once again, I agree with Soros. Halliburton should continue outperfoming and beating its self-imposed targets.


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