One of the top oilfield service providers in North America, Halliburton (HAL, Financial) reported impressive results due to the recent rise in the natural gas prices that has accelerated drilling activities in North America. Its earnings grew a massive 31.43% in the second quarter to $0.92 per share from $0.70 per share last year. It reported solid growth of 10.12% to $8.05 billion in revenue in the second quarter as compared to $7.31 billion in the corresponding period last year.
Quarterly performance
In addition, the company also said that it expects higher margins in North America in the on-going quarter as drilling activities in the region have picked up the pace after a two-year plummet, providing an industrywide recovery in North America. The company gets half of its revenue from North America and expects its margins to touch 20% in the current quarter, which is up about 1.8% from the April-June quarter. As a result its stock gained approximately 0.54% to $71.31 . Even more striking, its shares have surged about $20.18 or 40% to $70.93 so far this year and has rushed close to 55% or $25.10 in the past 12 months. Halliburton’s operating and net profit grew about 19.97% and 21.34% respectively in the second quarter year-on-year basis.
The company has invested heavily in its logistic infrastructure, creating a competitive edge against its peers. Also the company expects incremental fleet arriving in the second half of the year and throughout fiscal 2015 as it has now upgraded its legacy pumping system to Q10 pump that will provide a longer performance and reduce nonproductive time.
Looking ahead
In addition, the company has undoubtedly tightened its capacity with a drop of 10% excess horsepower thus evening it out with the market demand that should help Halliburton increase its revenue going forward. Also the prices for the drilling activities in the near future are expected to rise in the near future to 2% this year and added 4% in the fiscal year 2015, according to a May 16 report by PacWest Consulting Partners LLC that should undeniably boost its margins in the coming quarters.
Halliburton has also recently released CYPHER 2.0 on its CYPHER platform that will enhance its earth modeling capabilities based on innovative software applications that will better help the operators to optimize the development of their alternative reservoirs and lessen their cost per barrel of oil equivalent (BOE). It will thus increase its simulation accuracy and allow real-time adjustments during frac treatments.
Meanwhile, Halliburton has also acquired Neftex Petroleum Consultants Limited. Neftex has of late created a unique 4-D of the subsurface that are now being exploited by the E&P business houses around the world that better facilitate with the evaluation and identification of the resources rapidly and even more accurately.
This strategic partnership will certainly enhance its key strategies as Neftex will integrate and better interpret with its Earth Model, while using its Landmark’s DecisionSpace platform. This partnership is also expected to enhance its ability to envisage drilling success while increasing its customer’s ability to explore prospects.
Apart from this, Halliburton sees tremendous long term growth opportunities with respect to mature fields, unconventionals, and deepwater.
The company is seeing a great demand for its drill well plugs for plug-and-perf operations, with strong record installations of its RapidSuite sliding sleeve technology that will drive its efficiency. Moreover, the company continues to see strong activity levels in these fields in the coming years that will certainly drive growth for the company.
Conclusion
The stock is currently trading at the forward P/E multiple of 12.89 against trailing P/E multiple of 22.00, shares cheap valuations for the company that has potential growth in the future. Also its PEG ratio for the next five years is estimated to be at 0.82 shows a lot of rooms for the company to expand in the coming years. Moreover, the company is fairly evaluated on the performance matrix with the profit and operating profit yield of 9.49% and 14.47% respectively.
Also its ROE remains quite strong with the yield of 19.20% on the trailing twelve months. The company has total debt of 53.58 billion which is better mix by most measures while its operating cash flow remains at 5.05 billion and has free cash flow of 1.86 billion. The analysts have estimated CAGR of 20.80%, which is higher than average industry CAGR of 118.39% for the next five years. In my opinion, the stock is good pick for short as well as for a long term.
