Halliburton Company (HAL - Get Rating) is one of the world’s largest providers of products and services to the energy industry, functioning across more than 70 countries. The company operates in two segments- Completion and Production; and Drilling and Evaluation.

On May 23, 2022, HAL announced its agreement with Aker BP, a Norwegian oil and gas exploration and production company, to co-develop next-generation field development planning software. The new cloud application, Field Development Planning (FDP), aims to bolster advanced risk management concerning field development-related activities.

Moreover, on April 19, 2022, Jeff Miller, Chairman, President, and CEO, said, “I’m excited about the accelerating pace of global activity, pricing improvement, and Halliburton’s strong outlook. With our unique value proposition, clearly defined strategic priorities, leading technology portfolio, and global market presence, I expect Halliburton will deliver profitable growth, strong free cash flow, and industry-leading returns.”

Over the past year, HAL has gained 55.4% and 60.3% year-to-date to close yesterday’s trading session at $36.67. In addition, the stock has gained 82.7% over the past nine months and marginally over the past month.

Here is what could shape HAL’s performance in the near term:

Mixed Financials

For the first quarter ended March 31, 2022, HAL’s total revenue came in at $4.28 billion, up 24.1% year-over-year. Its net income came in at $263 million, up 54.7% year-over-year, while its EPS came in at $0.29, up 52.6% year-over-year. However, the company’s cash and equivalents came in at $2.15 billion, down 11.9% year-over-year.

Favorable Analyst Expectations

Analysts expect HAL’s revenue to increase 25% in the current year and 15.5% next year. Also, its EPS is estimated to increase 75% in the current year and 40.7% next year. Furthermore, HAL’s EPS is expected to grow 60.8% per annum for the next five years. It surpassed EPS estimates in each of the trailing four quarters.

Out of the fourteen Wall Street analysts who rated HAL, twelve rated it Buy, and two rated it Hold. Moreover, Wall Street analysts expect the stock to hit $46.83 shortly, indicating a potential upside of 27.7%.

Stretched Valuations

In terms of its forward EV/S, HAL is currently trading at 2.16x, 8.1% higher than the industry average of 2.00x. The stock’s forward P/S multiple of 1.73x is 9.8% higher than the industry average of 1.57x. In terms of forward EV/EBITDA, HAL’s 11.21x is significantly higher than the industry average of 6.62x.

Mixed Profit Margins

HAL’s trailing-twelve-month net income margin of 9.61% is 97.7% higher than the industry average of 4.86%, while its trailing-twelve-month EBIT margin of 11.81% is 8.7% higher than the industry average of 10.86%. However, its trailing-12-month gross profit margin of 13.54% is 66.3% lower than the industry average of 40.13%, and its trailing-twelve-month EBITDA margin of 17.45% is 20.8% lower than the industry average of 22.03%.

POWR Ratings Reflect Uncertainty

HAL has an overall rating of C, equating to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

HAL has a Quality grade of C, consistent with its mixed profit margins.

The stock has a C grade for Stability, in sync with its 24-month beta of 0.98.

In the 47-stock Energy – Services industry, HAL is ranked #23. The industry is rated C.

Click here to see the additional POWR Ratings for HAL (Growth, Value, Momentum, Sentiment).

View all the top stocks in the Energy – Services industry here.

Bottom Line

Energy services company HAL is expected to benefit from the high oil and gas prices. However, HAL’s stretched valuations and declining cash balance is concerning. Moreover, its revenue and EPS have declined at CAGRs of 12.4% and 5% over the past three years, respectively. Hence, I think it might be wise to wait for a better entry point in the stock.

How Does Halliburton Company (HAL) Stack Up Against its Peers?

While HAL has an overall POWR Rating of C, one might consider looking at its industry peers, ChampionX Corporation (CHX - Get Rating), NOW Inc. (DNOW - Get Rating), and Solaris Oilfield Infrastructure, Inc. (SOI - Get Rating), which have an overall B (Buy) rating.

HAL shares were trading at $36.26 per share on Wednesday afternoon, down $0.41 (-1.12%). Year-to-date, HAL has gained 59.58%, versus a -19.49% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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