Activity Growth in the Middle East and Latin America Will Drive 2023 Growth for Halliburton

Analyst

Katherine Olexa

Revenue segments as reported by the company.

Services

Product sales

Revenue Segments

Revenue is the money generated from normal business operations. Gross Profit is revenue minus cost of goods sold. Operating Income is revenue minus cost of goods sold and other operating expenses.

Revenue

Gross Profit

Operating Income

Revenue & Operating Income

Net Income, also called net earnings, is calculated as revenue minus cost of goods sold, operating expenses, depreciation, interest, taxes, and other expenses.

Net Income

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Impairments and other charges

General and administrative

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

Halliburton is one of the three largest oilfield service firms in the world, and it’s the largest pressure pumper in North America. The firm is renowned for its exceptional record of innovation, consistently developing novel ways to maximize value for its customers. 

We see challenges ahead for Halliburton, especially as the North American shale market grows increasingly competitive and profitability proves more difficult to maintain. Technological advances over the last several years have disseminated rather quickly among pressure pumpers, which reduces any one firm’s ability to maintain a competitive edge. In our view, Halliburton has risen to the occasion, as evidenced by its development of simultaneous fracturing, a method introduced by the firm in 2016 that’s essentially doubled the speed of well completions. We also think the industry’s push toward net-zero emissions presents opportunities in this space, and high demand for dual-fuel and electric fleets will allow Halliburton (as well as other providers of this next generation equipment) to command pricing premiums for at least a decade. 

Regardless, the oil and gas production space is transforming in real time, as traditional oil and gas companies set their sights on broader energy applications in anticipation of a global shift away from a reliance on oil. Halliburton has astutely resolved to focus its attentions inward, maximizing profitability where it can and expanding to address international markets. We’re also encouraged by its emphasis on developing digital solutions for its clients, which we think represents the next frontier in production efficiency with the added benefit of its asset-light nature that will allow Halliburton to maximize value generation over time.

Business Strategy & Outlook

We award Halliburton a narrow moat. The firm maintains a competitive advantage thanks to its impressive intangible assets, composed of its robust patent portfolio and its considerable engineering expertise and experience, all of which contribute to the firm’s strong reputation among well operators, which facilitates contract wins over time. We also observe a cost advantage through economies of scale and scope. Halliburton’s formidable size and broad end-market exposure allow the firm to maximize the value-add from R&D investments by applying insights across service and product lines. The firm’s returns on invested capital have averaged 12% over the past 10 years, and we expect its ROIC will improve over the next five, reaching 23% by 2027. 

The completion and production segment represents about 57% of Halliburton’s total revenue and largely provides services for hydraulic fracturing, cementing, and artificial lift. It’s a historically strong performer—segment ROICs have averaged in the mid- to high teens over the past five years. Despite industrywide headwinds, including downward pricing pressure and a constant race for innovation, we’re optimistic Halliburton will continue to find ways to deliver value through its operational know-how and continued technological prowess. 

The vast majority of this segment’s revenue relies on pressure pumping services (nearly three quarters, according to data from Spears & Associates), and Halliburton has long held the dominant market share in this industry. On average, Halliburton handles roughly one fourth of all active frac spreads in North America. The firm has the most exposure to the Permian Basin, which represents roughly one third of its active frac spread capacity. Halliburton, Liberty Energy, and ProPetro together control over half the Permian pressure pumping market, and the remaining half is highly fragmented. The relative market concentration in and of itself affords Halliburton a degree of pricing power relative to other, more fragmented markets, where rampant product commoditization puts significant downward pricing pressure on oilfield service firms. The Permian Basin also features geological characteristics that make it particularly suitable to simultaneous fracturing, a completions method introduced by Halliburton in 2016. Rystad indicates that in 2020, simultaneous-fracturing completions were 60% faster than the more widely implemented zipper fracking method, resulting in 5%-7% cost reductions for well operators. Halliburton can therefore charge a slight pricing premium for its services, because the cost savings make well operators—which are highly cost-sensitive—more amenable to a higher service charge.

The evident efficiency gains from simultaneous fracturing have spurred enthusiastic adoption of the method, representing 8% of total well completions at the end of 2020, compared with just 1% in 2018. That being said, simultaneous fracturing doesn’t make economic sense everywhere. It requires about 50% more equipment on a well pad, and not all basins feature sufficient pad density to support the requisite equipment intensity. The majority of simultaneous-fracturing operations therefore take place in the Permian, where Halliburton again maintains particularly strong market share. 

The Haynesville shale play is another valuable end market for Halliburton. It represents roughly 15% of Halliburton’s total active frac spread capacity, and the firm handles roughly half of the fracking operations in the region. The Haynesville shale play is significantly more concentrated than other markets: Rystad data indicates just five pressure pumpers maintain operations in the region. It also features more complex wells, making it the most frack-intensive play in the U.S. These two factors together create stickier customer relationships and convey more pricing power to service providers relative to other regions in North America. Haynesville is also in much closer proximity to frac sand mines than other regions. Management indicates that transportation expenses account for more than 50% of frac sand costs, so any reductions in distance traveled can garner cost savings (and in such a highly cost-competitive industry, any savings are impactful). We expect this cost advantage will prove particularly valuable in the near term as strong demand for frac sand pushes prices ever higher. Increasing simultaneous-fracturing adoption will exacerbate matters, since its higher equipment requirements also apply to frac sand. Prices will remain high until frac sand providers can introduce adequate capacity to restore the supply/demand balance (around 2023 year-end at the earliest, according to Rystad). 

The advent of simultaneous fracturing solidifies Halliburton’s reputation as an innovator in oilfield services and strengthens its value proposition toward well operators that consistently seek to maximize operational efficiency. Oilfield service providers are in a constant race toward the technological leading edge in order to drive efficiency gains that win contracts with well operators. The result has been rapid dissemination of technological advancements that have significantly reduced well costs over time. It appeared for a while that the most impactful developments had already been realized, but Halliburton’s solutions indicate there may be more runway for innovation than previously assumed. We expect competitors will implement simultaneous-fracturing solutions of their own, which may erode some of Halliburton’s competitive advantage over time, but several other industry developments present opportunities for the firm to protect its position as the lead innovator in pressure pumping and beyond. 

Next-generation equipment such as electric frac spreads, or e-fracs, and dual-fuel frac spreads represent the current technological leading edge in pressure pumping, and Halliburton is positioned to take significant market share. Next-generation frac fleets are in particularly high demand by well operators seeking to minimize wellsite emissions wherever possible. By our estimate, next-generation fleets can confer cost savings to well operators in excess of $100,000 per month, and their potential cost effectiveness only increases when diesel or gas prices are high. These savings are even after accounting for the hefty price premiums these next-generation fleets can command compared with traditional diesel fleets—10%-15% for dual-fuel fleets, and 20% for e-fracs, according to Rystad. E-fracs and dual-fuel fleets currently operate at maximum capacity, which we expect will persist for the next few years. Several service firms intend to introduce additional capacity over the next few years, but it will take quite a bit of time and investment before available capacity can erode price premiums, which will protect Halliburton’s moat for some time. Halliburton is investing in infrastructure development so more well operations can support e-fleets, however, which will support continued industry growth over time. Service firms aren’t rushing to launch large fleets of these at once; despite the numerous advantages provided by these next-generation fleets, the frac equipment market remains oversupplied. Furthermore, the service industry has learned from the overexuberant investment in the 2010s that caused the rampant rig overcapacity today. Service firms have by and large indicated they won’t build new fleets without first receiving a contract from a well operator (which also tends to be longer term to ensure adequate return on investment). Dual-fuel conversions can cost around $10 million, while e-frac conversions can be as high as $60 million per fleet. In our view, the high capital investment required for upgrades may create barriers to entry for smaller players. It's worth noting that Halliburton’s largest competitors like Liberty Energy and ProFrac are actively upgrading their fleets, but we think the expense associated with upgrades plus the time required for fleet conversions will keep industry conversions slow enough to protect pricing premiums for next-generation equipment over the next few years. 

The other portion of Halliburton’s business falls into the drilling and evaluation segment, which has averaged 16% ROICs over the past five years. We don’t see as much of a competitive advantage from technological prowess in this segment, as rampant product commoditization leaves little room for technological differentiation, leaving Halliburton and peers to compete almost entirely on price. Furthermore, Halliburton often holds a distant second, or even third, place to Schlumberger and Baker Hughes in nearly every product line. Nevertheless, the portfolio diversification contributed by this segment allows Halliburton to leverage its innovations across the company, maximizing the return on its R&D dollars and strengthening its overall cost advantage. 

We see evidence of this in the drilling and completion fluids product line, which features several products used in pressure pumping, where Halliburton is known for driving innovation. It’s this segment’s strongest product line by far, generally representing about 30% of total segment revenue. Schlumberger and Halliburton have enjoyed a relative duopoly in this market since at least 2008, each controlling roughly 25% of the market, and share falls off dramatically thereafter (the third-largest player’s share is below 10%, according to data from Spears & Associates). 

The drilling and evaluation segment is much more globally diversified, as well, which can at times mitigate adverse impacts from cyclicality, which is typical of the oil and gas market. The North American oil and gas market tends to be highly volatile, as well operators are typically very quick to adjust operations in response to changes in oil and gas prices. International (excluding U.S.) markets, on the other hand, still cycle with oil and gas prices, but tend to be significantly less sensitive to price cycles. The larger proportion of national oil companies entails significantly more government-contracted projects in international markets, which tend to adopt a longer-term view. The firm no longer breaks out segment revenue by geography, but we expect roughly two thirds of drilling and evaluation revenue comes from international markets, compared with roughly one third in the completion and production segment. The impact is noticeable—following the significant activity declines in 2020, completion and production revenue fell by one half compared with 2019, while drilling and evaluation revenue fell by less than a quarter. Halliburton still maintained excess returns in 2020, but if its drilling and evaluation segment held similar geographic exposures to the completion and production segment, we estimate ROICs could have dropped below 1%. 

Overall, Halliburton maintains a strong business that’s resilient during downturns and continues to contribute meaningful innovations in an industry where technological differentiation is difficult to attain, let alone maintain. We expect the firm’s strong market share in several core competencies coupled with its reputation for continually adding value for its customers will ensure the firm generates excess returns for at least the next 10 years.

Narrow

Economic Moat

Halliburton

Halliburton Co. engages in the provision of services and products to the energy industry related to the exploration, development and production of oil and natural gas. It operates through the following segments: Completion and Production and Drilling and Evaluation. The Completion and Production segment delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift and completion services. The Drilling and Evaluation segment provides field and reservoir modeling, drilling, evaluation and wellbore placement solutions that enable customers to model, measure and optimize their well construction activities. The company was founded by Erle P. Halliburton in 1919 and is headquartered in Houston, TX.

Earnings data Q2 2023

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Halliburton Co. engages in the provision of services and products to the energy industry related to the exploration, development, and production of oil and natural gas. It operates through the Completion and Production, and Drilling and Evaluation segments. The Completion and Production segment delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift, and completion services. The Drilling and Evaluation segment provides field and reservoir modeling, drilling, evaluation, and wellbore placement solutions that enable customers to model, measure, and optimize their well construction activities. The company was founded by Erle P. Halliburton in 1919 and is headquartered in Houston, TX.

Halliburton had a fantastic start to 2023 as revenues rose 33% YoY as a result of a demanding market and eager companies to start producing oil and gas. The industry might be under pressure by the social sentiment, but there are still projects starting which create an opportunity for HAL to continue growing revenues.

Halliburton: Solid Company Growing With The Industry

Apple

Bank of America

Caesars Entertainment

DISH Network

Enphase Energy

KeyCorp

Moderna

Match Group

NVIDIA

Newell Brands

PayPal

Invesco S&P 500 Equal Weight ETF

SPDR S&P 500 ETF Trust

Warner Bros Discovery Inc

Bank of America is getting more bullish on S&P 500 stocks. Just not the ones that have been driving the S&P 500 higher all year.

Bank Of America Upped Its Forecast For Stocks — Just Not The Ones You Think

APA Corporation

Chesapeake Energy

Camber Energy

Callon Petroleum

Shell PLC

W&T Offshore

Many national governments have gotten on board with net zero emissions targets in the decades to come. Indeed, the clean energy transition is well underway, putting energy stocks at serious risk over time.

7 Energy Stocks That Are Doomed to Fail in the Clean Energy Transition

HOUSTON--(BUSINESS WIRE)--Halliburton Company (NYSE: HAL) announced today that at its annual meeting of shareholders held in Houston, Texas, on May 17, 2023, the shareholders elected all 13 nominees to the Company's board of directors. Shareholders elected board members Abdulaziz F. Al Khayyal, William E. Albrecht, M. Katherine Banks, Alan M. Bennett, Milton Carroll, Earl M. Cummings, Murry S. Gerber, Robert A. Malone, Jeffrey A. Miller, Bhavesh V. Patel, Maurice S. Smith, Janet L. Weiss, and T.

Halliburton Annual Meeting of Shareholders and Dividend Declaration

Halliburton (HAL) has been one of the stocks most watched by Zacks.com users lately. So, it is worth exploring what lies ahead for the stock.

Investors Heavily Search Halliburton Company (HAL): Here is What You Need to Know

Booking Hlds

Baker Hughes Co

Lamb Weston Hlds

MGM Resorts

PACCAR

SolarEdge Technologies

Missed owning shares of S&P 500 companies that posted massive profit growth in the first quarter? Fear not: Analysts think some of them will do it again in this quarter.

8 Stocks Wowed With 50% Profit Growth — Analysts Expect A Repeat

Enbridge

Valero Energy

Energy stocks were one of the hottest sectors in the market in 2022. Between the onset of the war in Ukraine, surging inflation and concerns around macroeconomic policy, oil and gas were in the right place at the right time.

3 Energy Stocks That Are Trading at a Massive Discount Right Now

Wondering how to pick strong, market-beating stocks for your investment portfolio? Look no further than the Zacks Style Scores.

Why Halliburton (HAL) is a Top Value Stock for the Long-Term

Devon Energy

We have been patiently waiting for this pullback/consolidation period in the energy sector to complete. What happens over the next few weeks is highly variable but the bigger picture clearly projects higher prices.

Halliburton And Devon: You May Want To Buckle Up For This Next Part

TechnipFMC

Hess

Noble Corp PLC

Oceaneering

Schlumberger

Weatherford International PLC

Exxon Mobil

Oil demand is likely to hold up longer than many people expect during the anticipated transition to electric vehicles. And changes in the industry point to oilfield services companies as good long-term growth investments as offshore production ramps up.

Here's how to play oil-industry stocks for long-term growth of 20% or more

Chevron

U.S. crude futures tanked Tuesday and continued to slip Wednesday, hitting 5-week lows. The oil price decline dragged down energy stocks.

Oil Prices Skid To Lowest Level Since March; Traders Brace For Recession

Energy Select Sector SPDR Fund

Kinder Morgan

Marathon Oil

Occidental Petroleum

Energy stocks were suffering a broad beating Tuesday, as a selloff in crude prices was exacerbated by a big decline in the broader stock market. The Energy Select Sector SPDR exchange-traded fund XLE sank 4.4% toward a five-week low, with all 23 equity components losing ground.

Energy stocks suffer broad selloff, led by Halliburton, as crude oil falls to more than 5-week low

Here is What to Know Beyond Why Halliburton Company (HAL) is a Trending Stock

While the top- and bottom-line numbers for Halliburton (HAL) give a sense of how the business performed in the quarter ended March 2023, it could be worth looking at how some of its key metrics compare to Wall Street estimates and year-ago values.

Halliburton (HAL) Reports Q1 Earnings: What Key Metrics Have to Say

Halliburton Company (HAL) Q1 2023 Earnings Call Transcript.

Halliburton Company (HAL) Q1 2023 Earnings Call Transcript

Stronger-than-expected profit from both its divisions helped Halliburton (HAL) gift investors another estimate-beating quarter.

Halliburton (HAL) Q1 Earnings Beat as Both Units Outperform

Halliburton reported first quarter financial results that saw revenue grow 32.5% on a year-over-year basis thanks to strong demand and pricing, helping the company easily top Wall Street estimates. For the period ending March 31, 2023, the Houston-based oil services company posted earnings of $0.72 per share on revenue of $5.7 billion.

Halliburton 1Q earnings beat estimates on strong demand and pricing

Halliburton (HAL) came out with quarterly earnings of $0.72 per share, beating the Zacks Consensus Estimate of $0.67 per share. This compares to earnings of $0.35 per share a year ago.

Halliburton (HAL) Surpasses Q1 Earnings and Revenue Estimates

The company's earnings per share came in at 72 cents, compared with expectations for 67 cents. Revenue was $5.7 billion, against the $5.5 billion expected.

Halliburton Earnings Defy Falling Oil Prices. Why the Stock Is Still Dropping.

Halliburton Co. HAL reported Tuesday first-quarter earnings that rose above expectations, amid strength in its completion and production business, but the oil services company's stock slipped 1.3% in premarket trading. Net income more than doubled to $651 million, or 72 cents a share, from $263 million, or 29 cents a share, in the year-ago period.

Halliburton beats earnings expectations, but stock falls

HOUSTON--(BUSINESS WIRE)--Halliburton Company (NYSE: HAL) announced today net income of $651 million, or $0.72 per diluted share, for the first quarter of 2023. This compares to net income for the first quarter of 2022 of $263 million, or $0.29 per diluted share. Halliburton's total revenue for the first quarter of 2023 was $5.7 billion compared to total revenue of $4.3 billion in the first quarter of 2022. Reported operating income was $977 million in the first quarter of 2023 compared to repo.

Halliburton Announces First Quarter 2023 Results

Halliburton stock (NYSE: HAL), an energy company organized into the exploration, development, and production of oil and natural gas, is scheduled to report its fiscal first-quarter results on Tauesday, April 25.

Halliburton Stock Likely To See Higher Levels Post Q1 Results

Halliburton: The Recovery Continues

While strong activity improvement is likely to have boosted Halliburton's (HAL) first-quarter results, escalation in costs might have played spoilsport.

Halliburton (HAL) Q1 Earnings Preview: What's in Store?

Halliburton (HAL) unit, Halliburton Labs adds three new companies to its clean energy accelerator program and supports early-stage companies with necessary resources.

Halliburton (HAL) Adds 3 Companies to Its Clean Energy Program

News for Halliburton Stock (HAL)