Halliburton Company (HAL, Financial) is a provider of services and products to the energy industry related to the exploration, development, and production of oil and natural gas. In this article, let's take a look at this company and try to explain to investors the reasons this is an apparently appealing investment.
Top Three
The company serves practically all the oil and natural gas companies throughout the world and operates under two segments: Completion and Production and Drilling and Evaluation. The company has manufacturing operations in various locations, including the U.S., Canada, Malaysia, Mexico, Singapore and the UK. It is among the top three players in each of its segments, and is present in all major hydrocarbon-producing regions of the entire world. Although the U.S. is the single largest oilfield services market in the world, other regions, such as the Eastern Hemisphere, are growing faster where the firm has presence.
Growing International Business
In the Drilling & Evaluation segment, markets abroad are increasing and the growth continues to surprise investors and analysts. The company continues improving its international margins, and expands market penetration in deepwater and underserved international regions.
Analyst Recommendation
The firm is currently Zacks Rank # 3–Hold, and it also has a longer-term recommendation of “Neutral”. A Hold rating indicates that the stock, over the next one to three months, will perform at an annualized rate of 10.56%, very similar to the S&P 500.
P/E, Earnings and ROE
In terms of valuation, the stock sells at a trailing P/E of 24.1x, trading at a premium compared to an average of 17.4x for the industry. To use another metric, its price-to-book ratio of 3.7x indicates a premium versus the industry average of 1.67x and the price-to-sales ratio of 1.79x is above the industry average of 1.4x. The metrics indicate that the stock is relatively overvalued relative to its peers.
Earnings per share (EPS) increased by 43% in the most recent quarter compared to the same quarter a year ago, to $0.90 per share for the fourth quarter of 2013. We include in the next graph the stock price because EPS often lead the stock price movement. As we can appreciate in the chart, the price performance makes the stock appealing with an upward trend over the last five years.
Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. The ratio has decreased when compared to the same quarter one year prior. Let´s compare the current ratio with the peer group in the next table:
| Ticker | Company Name | ROE (%) |
| HAL | Halliburton | 15.65 |
| EXH | Exterran Holdings | 7.41 |
| BHI | Baker Hughes | 5.78 |
| UNT | Unit Corporation | 8.5 |
| BAS | Basic Energy Services | -10.41 |
As we can see, the firm has a higher ROE than it peers: Exterran Holdings (EXH, Financial), Baker Hughes (BHI, Financial), Unit Corporation (UNT, Financial) and Basic Energy Services (BAS, Financial).
Final Comment
Record high energy prices have induced increased exploration and drilling so energy companies, like National Oilwell Varco (NOV) and Schlumberger (SLB) have been generating massive profits over the past two years. We think that Halliburton will keep also that pace in the coming years.
I would recommend investors to add Halliburton to their long term portfolios. Hedge fund gurus have also been active in the company in fourth quarter 2013. Gurus like David Tepper (Trades, Portfolio), Steven Cohen (Trades, Portfolio), George Soros (Trades, Portfolio), Jean-Marie Eveillard (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Ron Baron (Trades, Portfolio) Stanley Druckenmiller (Trades, Portfolio), Ronald Muhlenkamp (Trades, Portfolio), Ray Dalio (Trades, Portfolio), John Buckingham (Trades, Portfolio), Glenn Greenberg (Trades, Portfolio) and John Keeley (Trades, Portfolio) have taken long positions in it.
Disclosure: Victor Selva holds no position in any stocks mentioned.
