Halliburton Poised To Outperform The Energy Sector (HAL)

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By Adil Yousuf

The Oil and Gas Equipment Services Industry has been subject to a lot of media attention over the years, mostly for bad reasons. Halliburton (HAL), too, has received its fair share of criticism, be it the Gulf oil spill or its lucrative deals made during the Iraq war. However, despite all the controversy, the company has performed strongly across the years.

While 2012, was a tough year for HAL due to sluggish domestic business, it still managed to post record revenues for the fourth quarter, laying the groundwork for a strong performance in 2013.

For Q4 2012, HAL surpassed street expectations posting Earnings of 67 cents per share vs. 61 cents per share on revenue of $7.3 billion - This was the Company's highest quarterly revenue performance in its history. Even more impressive, the company managed to grow revenue 3.2% sequentially despite a sluggish oil industry. Additionally, HAL posted strong results for overseas operations where it logged 20% revenue growth, with Saudi Arabia, Australia, and Russia being particularly strong. Moreover, it also touted key partnerships with Caterpillar (CAT) and Apache (APA) to develop pumping equipment 1.

HAL's strong performance in international markets was particularly encouraging, especially given the fact that the company shed 5% in international revenue in the prior quarter. International markets now comprise 39% of HAL's overall profit growth, and will play a strategic role in determining HAL's performance in the upcoming quarters.

Q4 2012, was also an encouraging quarter for HAL when comparing its performance relative to its peers. Baker Huges (BHI) saw fourth quarter earnings fall due to a sharp drop in profits from its North American business. Similarly, Schlumberger (SLB) suffered due to slowdown in North American onshore activity and lower revenue from its international operations. Though, larger rival Schlumberger dominates the global operations in the oil-services industry, HAL's growth internationally will give them a run for their money.

Based on Market IQ's proprietary Fundamental metrics, HAL is expected to Outperform its peers. Market IQ places HAL in the top right quadrant of the Quality - Value chart (see below), indicating high Quality and Investment Value.

For more insights, visit the Market IQ blog.

 

The above Quality - Value chart consists of the following companies: Halliburton (NYSE:AIG), Schlumberger (NYSE:SLB), Cameron International Corp. (NYSE:CAM), FMC Technologies Inc. (NYSE:FTI), Baker Huges In. (NYSE:BHI), Tenaris S.A (NYSE:TS), National Oil-Oilwell Inc. (NYSE:NOV), and Weatherford International Ltd. (NYSE:WFT).

The Company's Qualitative strengths can be seen in multiple areas such as Return on Equity and Financial Strength.

 

  • The firm has a current Return on Equity of 16.71% which surpasses the industry average of 12.73%.
  • The current Equity to Debt ratio of 1.64 compares favourably to the industry average of 1.29 indicating HAL's strong financial standing in its peer group.

 

According to Market IQ's Valuation metrics, HAL is cheaper than 71% of its peers and offers good upside potential. HAL is currently trading at a Price to Book (P/B) value of 2.37 and a Price to Forward EPS multiple of 13.26. Both these metrics are better than the industry average of 2.69 and 15.34 respectively.

Going forward, HAL is optimistic about its operations and has provided a positive outlook for 2013. The company expects improvement in profit margins 2, reduction in costs 3, and continued strength in overseas operations.

The growth potential and tempting Valuation makes HAL an appealing stock for those looking for higher yields in the energy sector of the economy. Considering the record year for the company with revenue totalling $28.5 billion, despite the challenges experienced in the North American market, HAL is poised to perform strongly in 2013.

1HAL has partnered with CAT and APA to develop pumping equipment that can run on both diesel and natural gas, essentially taking the plentiful gas obtained from its drilling operations and using a portion of it to fuel further production.

2HAL views Q4 profit margins of 12% as a low end threshold, expecting margins to improve significantly in 2013, positively impacting the firm's bottom line.

3HAL expects inventory prices to come down by Q2 2013, which should drive down costs.

 

This commentary is for informational purposes only and does not constitute investment advice. The opinions offered herein are not recommendations to buy, sell or hold securities. Market IQ expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.



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



This article appears in: Investing , Investing Ideas , Commodities , Stocks

Referenced Stocks: APA , BHI , CAT , HAL

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