Staying on top of the crest of an industry is no easy task. It requires at least a highly qualified human resource team to discover growth opportunities ahead of the competition. Of course that additional political connections to enter those troubled geographies is as handy as a great load of industry nerds. Halliburton (NYSE:HAL) seems to have both. The company has gone a long way since successfully tapping the first unconventional well using hydraulic fracturing 65 years ago. Today, fracking is a standard practice in the industry, but the firm has not stopped introducing new products and expanded across the globe. During the first quarter of 2014 alone, Halliburton has expanded its line of drilling optimization tools, introduced a new fracture diagnostic tool, a wireless controlled well testing solution and a line of fully integrated, custom-engineered service solutions. Is this why George Soros (Trades, Portfolio) continues to increase his holding in the company?
- Warning! GuruFocus has detected 3 Warning Signs with HAL. Click here to check it out.
- HAL 15-Year Financial Data
- The intrinsic value of HAL
- Peter Lynch Chart of HAL
Market Trends and New Partnerships
Some news outlets have been the echo of Halliburton’s decision to close its liberal facilities. The news remarked the fact that employees would be transferred to another location, but disappointment lingered as reminiscence of fracking golden years linger. “Halliburton is closing the facility as a result of changing business needs from its customers,” according to Halliburton Senior Manager – PR & Community Initiatives Emily Mir. And that is the plain truth: The oil and gas industry is going through changes in North America with most companies beginning to focus on offshore drilling.
The offshore trend is so strong that it has the potential to revive companies believed to be permanently out of business, like Transocean (RIG) after the Deepwater Horizon incident. Hence, moving jobs from Liberal, Kansas, to Pampas, Texas, is coherent with current trends in North America as onshore reserves begin to dry. On the other hand, many offshore reserves remain untapped or undiscovered.
Halliburton has additionally looked for long growth opportunities abroad. For instance, the company opened its new Unconventional and Reservoir Productivity Technology Center at King Fahd University of Petroleum and Minerals, located in Dhahran Techno-Valley. Also, the firm announced the signing of a partnership agreement with Gubkin Russian State University of Oil and Gas for the development of unconventional resources in Russia, including the Bazhenov shale.
Prospects for an Industry Leader
Market positioning for Halliburton strength is evidenced by the fact that is a top three players in each of the product and service categories offered, and is present in all major hydrocarbon-producing regions of the world. Additionally, the firm enjoys very strong relationships with both private and state representatives. And prospects continue to improve as activities are driven away from onshore North American operations while no fleet unit is underutilized.
With respect to offshore activities, Halliburton's revenue in the segment is growing 25% faster than the industry average. However, management expects that leverage will decline as competition tightens. This issue is already being addressed by the firm through international opportunities. More specifically, new shale discoveries in Latin America are expected to help the company maintain an edge over the competition.
Additional trends that will keep Halliburton on top are a leading position in the North American oilfield services market, and market penetration in deepwater and underserved international regions. A third leg for the company’s future profits aims at tripling mature field services revenue to $9 billion by 2016. And the key for all this to work is the dominant position developed in pressure pumping.
Currently trading at 24.9 times its trailing earnings, Halliburton’s stock carries a 7% premium to the industry average. With stable net income through the last three years and increasing revenues amid legal battling and settlements, the company is in a great standing. So great that stock’s face value has recovered from the blow suffered in 2011, a trend that gurus anticipated. That is why many bought the stock throughout 2013: Because it was a cheap entry price. Today, prospect investors are obligated to pay current prices or wait for another hard-to-come-by entry point.
Disclosure: Vanina Egea holds no position in any of the mentioned stocks.