Halliburton (HAL, Financial) expects to grow in an uncertain North American market despite volatility and slow down.
Smart moves
Internationally, Halliburton has started witnessing the impact of weaker commodity prices in the fourth quarter. Falling oil prices have forced its customers to contract their budgets and postpone many of their innovative projects, mainly offshore exploration projects.
Fiscal year 2015 is forecast to prove tough for Halliburton across all of its international regions. Asia/Middle East is expected to be the most flexible; after that Latin America. And lastly, CIS, Africa, Europe is estimated to witness the highest fall.
The decline in oil prices globally must hit Halliburton hard with its key customers lowering their spending and major exploration projects being delayed.
Growing in key areas
Considering the latest project assigned to the company in Kuwait, the UAE, Iraq and Saudi Arabia for 2015 Middle East/Asia is estimated to be the top performing region with all projects in these countries likely to accelerate. Though, Australia, Malaysia and other markets in the region are forecast to be affected by delayed projects and lowered customer spending.
In Latin America, Halliburton is currently expecting to witness an unusual growth of activity levels in Argentina, coupled with the activation of its innovative and incorporated asset management project in Ecuador. But, the weaker activity levels in Colombia and Mexico are believed to overpower the enhanced growth in these markets.
The mixed company performance with improved results in the Middle East and Asian markets is believed to be partially offset by the poor performance in Mexico and Columbia.
Africa/CIS, Europe is forecast to witness considerable activity declines throughout the region with major fall estimated in the regions of Angola, Russia and the North Sea. Moreover, Norway and Russia are also witnessing sharp currency declines.
The solid financial position of Halliburton with impressive free cash flow is believed to easily drive the company through these difficult and declining market pricing conditions. In addition, the company’s continued efforts for implementing its key strategic initiatives are expected to prove beneficial for the overall health of its business.
The overall oil demand in 2015 is forecast to increase by approximately 900,000 barrels per day and in line with different development estimates of approximately a million barrels per day which is estimated to be slightly offset by the standard yearly production fall rates of up to 30% for unconventional in North America and even higher in other regions.
The stable financial position of Halliburton is allowing it to face the headwinds of the worldwide declining oil prices.
Globally, declining rates have become highly prominent in some major markets in the last few years. In regions such as Russia, Norway and Angola, previous company expansion has turned into net production falls for last year whereas declining rates in markets such as India and Mexico have accelerated.
Halliburton’s release of Q-10 pumps is being exceedingly accepted by the customers and driving in enhanced profitability for the company and its shareholders.
Fitch Ratings has declared Halliburton Company's long-term Issuer Default Rating (IDR) and senior unsecured ratings at "A-" post the declaration of its acquisition of Baker Hughes Inc. (BHI, Financial) at a total cost of $38 billion. Halliburton’s short-term ratings were announced to be "F2" with the Rating Outlook being Stable. The rating provided is based on the facts that Halliburton has an adequate liquidity position, manageable maturities profile and other liabilities.
Positive consensus
Moody’s also changed Halliburton’s outlook to stable from negative reflecting its enhanced financial performance, weaker trending utilization profile and generation of healthy cash flow to support capital expenditure and superior dividend payouts, remaining free cash flow to finance its share repurchase approval.
The consensus recommendation of 35 polled investment analysts analyzing Halliburton stock reiterates the company to outperform the market owing to the fall in sentiment of investment analysts in October 2011. The earlier consensus recommendation advised investors to buy equity in the stock.
Conclusion
Overall, investors are advised to invest into Halliburton Company looking at the solid growth prospects with PEG ratio of 1.74. The EPS estimate of 4.11 is higher than the industry’s average of 0.14 only. The profit margin of 10.65% is also impressive supported by a robust balance sheet with total cash of $2.35 billion.
