Softness in the Oil Market Cannot Hold Back Halliburton

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Nov 30, 2014

Oil giant Halliburton (HAL, Financial) is on a roller coaster ride. The company is performing outstandingly on the stock market. The company recently came up with strong financials, beating analysts’ estimates. However, many analysts are estimating the oil market to be slightly soft in the coming days, but Halliburton management seems well-positioned for a good quarter despite the challenges. Let us take a closer look at the company.

Recent results have been strong

In the recently reported third quarter, Halliburton’s revenue rose by 16% to $8.7 billion from $7.47 billion as compared to the revenue it posted in the same quarter last year. The company’s net income rose by a good 43% also there was a decent 30% improvement in the adjusted operating income. On the earnings part, Halliburton posted EPS of $1.41 per share as compared to $0.79 per share in the same period last year. This also beat analysts’ estimates of $1.10 per share.

Halliburton is turning out to be a leading stock in the segment and with its best in the category results, it has surpassed every ones expectations and is looking for a better operational delivery. Investors are always cheesy about the high flying stocks and Halliburton is one of such high flyer. It is clearly evident with the terrific increase in the profit and revenue. The analysts’ are expecting it to fly even higher in the coming days.

Focusing on delivering growth

The company is majorly focusing on improving the shareholders’ wealth. It is taking various attractive initiatives to keep the investors interested in the company. Halliburton has recently announced an additional 20% increase in the dividend which doubled the quarterly dividend offering in two years.

From North America, Halliburton is seeing good growth. This can is evident because of the higher operational activities in these regions. The company is also seeing contract renewals, it has also made impressive progress on pricing regarding this. Halliburton is expecting the new contracts to benefit meaningfully by 2015.

On the international front, Halliburton is seeing strong response from the markets such as Saudi Arabia, Southern Iraq, West Africa, and the Caspian and is seeing no signs of weak performance from these regions. It is expecting a double digit growth from the contribution of these regions. This is not just enough for Halliburton, it is expecting $1 billion new contracts arising from Iraq. But the story has a negative past also. Halliburton is expecting weakness from the regions such as Russia, Libya and Iraq due to geopolitical issues however, it is expecting its eastern hemisphere activity to operate well to offset the negative impact of this weakness in these regions.

Halliburton is also seeing positive response from Latin American region. It is optimistic about the Mexico energy reform and is seeing great opportunities in Mexico shale markets as these markets are still in infancy and will improve majorly in the coming years. Also, in Brazil the company is in negotiations for the directional drilling contract and if it succeeds to hit this new contract, Halliburton is expecting to start off the new fiscal year on a strong note.

Moreover, the cautious forecast about the oil prices might put Halliburton to a challenge. The oil prices are tumbling and consensus are estimating oil prices to fall to $75 per barrel in 2015. This can make the situation challenging for Halliburton. But the oil field service company is optimistic of strong performance in future on the back of strong responses it is seeing from the other markets in other regions.

The oil prices have tumbled by more than 25% recently but management says this will show no signs of slowdown in the drilling activity of the company. The confidence of the company is also visible by a strong statement made by the CEO stating- "We believe industry fundamentals suggest that these lower prices are not sustainable," the reason for this confidence is that the company thinks that the weakness in oil supply and demand is short termed and will be back on track soon.

Conclusion

Now moving on to fundamentals, the stock is cheap with a trailing P/E of 13.87 and the earnings are also growing steadily with forward P/E of 11.37. The stock appears to be a good long term holding as well as its earnings for the next five years are growing at a CAGR of 20.20% which is more than the industry average of 16.04%. Also the short term weakness are expected to be on track soon giving ample opportunities for Halliburton to perform better. So as of now with an impressive dividend, Halliburton is a good pick.