Halliburton’s Stock Faces Challenges but Shows Long-Term Promise

Despite a 15% drop in value this year, Halliburton’s stock (NYSE: HAL) remains an interesting option for investors looking at the long haul. Currently priced around $30 per share, Halliburton operates in the exploration, production, and development of oil and natural gas. In comparison, its competitor SLB (NYSE: SLB) has seen a 14% decline this year, with its stock now valued at $44. Recent pressures on Halliburton shares stem from issues in North America and potential changes to OPEC+ production, which counterbalance its strong international performance.

Financial Performance and Outlook

Halliburton has been particularly sensitive to the fluctuations in the North American frac market, which brings in 43% of its revenues. This vulnerability recently resulted in an 8% decline in North American revenue for the first nine months of fiscal year 2024, even as service discipline has helped stabilize prices. The overall environment poses challenges as oil price growth remains modest.

However, the company is adapting by focusing on growth areas through internal product development. Notably, Halliburton’s artificial lift product line is now expanding at twice the rate of its overall business in international markets. Moreover, the Middle East has proven to be a strong revenue source, where drilling services have surged by 30% year-over-year. Halliburton’s Drilling and Evaluation segment showed a 7% increase in operating margin for the first three quarters of 2024, while the Completion and Production segment saw a decline of 2%. We anticipate that this positive trend will likely continue in Q4.

We project Halliburton’s revenues to reach $23.1 billion for fiscal year 2024, remaining flat compared to the previous year. Expected earnings per share (EPS) have been revised to $3.07. Based on these figures, our valuation for HAL stands at $33 per share, nearly 10% above its current price.

Historical Performance and Market Context

The last three years have been marked by volatility for Halliburton’s stock. Its returns posted 22% in 2021, a remarkable 74% in 2022, but fell to -6% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, which consists of 30 stocks, has consistently outperformed the S&P 500 during the same timeframe, displaying less volatility.

This raises questions about Halliburton’s future performance. Amid uncertainties like interest rates and geopolitical tensions, could Halliburton again underperform the S&P 500, as seen recently, or might it experience a significant rebound?

Oil Market Influences

Internationally, tensions persist in Ukraine as it heads into another challenging winter, with ongoing strains between the U.S. and China, the leading oil importer. Although China’s oil demand is projected to increase, it remains tepid compared to previous years, with an expected growth of only 180,000 barrels per day (bpd), down from an average of one million bpd. Moreover, ongoing conflicts within oil-rich regions of the Middle East further complicate the landscape. While these geopolitical factors might typically lead to price hikes, the growing production from the U.S. and non-OPEC countries is balancing the market, thus limiting significant price increases.

The International Energy Agency forecasts an increase of 862,000 bpd in oil demand for 2024 and 998,000 bpd for 2025, with OPEC+ considering a rise in oil production soon. Political developments in Libya are also expected to affect supply positively.

Recent Quarterly Performance

In its third quarter, Halliburton reported revenue of $5.7 billion, a 2% decline from the previous year, and below analysts’ expectations of $5.83 billion. This revenue decline is attributed to operational challenges, including cyber incidents and weather disruptions. North America saw a 4% sequential drop in revenues to $2.4 billion due to decreased pressure pumping, while international revenue remained steady at $3.3 billion, benefiting from robust operations in the Middle East. For Q3, the company also reported an EPS of $0.65, which was lower than the anticipated $0.75.

Halliburton remains committed to prioritizing returns rather than just market share. Almost 40% of its fleets are e-fleets under multi-year contracts. With the recent introduction of Auto Frac, which is currently deployed on 20% of these e-fleets, the company aims to expand this coverage to 50% in Q4. By 2025, it anticipates that nearly all e-fleets will operate under Auto Frac contracts, signaling a further push towards innovation and operational efficiency.

Peer Comparisons

Understanding Halliburton’s position within its industry is crucial. The company’s stock performance can be evaluated against its peers, providing valuable insight into its market stance and performance metrics.

[1] Returns as of 11/13/2024
[2] Cumulative total returns since the end of 2016

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.