Elevated International Activity Will Drive Halliburton's Performance in 2023 and Beyond

Analyst

Katherine Olexa

Revenue segments as reported by the company.

Services

Product sales

Revenue Segments

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

SAP S4 upgrade expense

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 Q3 2023

Revenue

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.

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

Halliburton (HAL) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Halliburton (HAL) Earnings Expected to Grow: Should You Buy?

Albemarle

Caterpillar

Under Armour

Caterpillar, Under Armour and Halliburton are among the companies with strong fundamentals that haven't seen big run-ups in market valuation this year.

These Stocks Haven't Joined the Rally. That Could Change.

HOUSTON--(BUSINESS WIRE)--Halliburton Labs introduces FuelX, LiNa Energy, and Solaires Entreprises as the newest participants in its clean energy accelerator. The companies will join a collaborative ecosystem that includes industrial capabilities, technical expertise, and global network connections to scale their respective businesses. The move is part of Halliburton Labs' ambition to advance clean energy innovation.

Halliburton Labs Welcomes Three New Companies to its Energy Tech Accelerator

Halliburton's (HAL) subsidiary, Landmark, secures a contract from Repsol to aid the latter with its DecisionSpace 365 well construction suite.

Halliburton's (HAL) Subsidiary Wins Repsol's Tech Contract

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Is Halliburton (HAL) Stock Undervalued Right Now?

When deciding whether to buy, sell, or hold a stock, investors often rely on analyst recommendations. Media reports about rating changes by these brokerage-firm-employed (or sell-side) analysts often influence a stock's price, but are they really important?

Wall Street Analysts Think Halliburton (HAL) Is a Good Investment: Is It?

Halliburton Co.(NYSE: HAL) is one of the world's largest oilfield services companies offering various service solutions addressing the oilfield lifecycle. The company primarily operates two core segments.

Is Halliburton Stock a Value or a Value Trap?

Halliburton's (HAL) digital solutions will use advanced data analytics, artificial intelligence and machine learning to help Petrobras make informed, real-time decisions.

Halliburton (HAL) to Deliver Digital Solutions to Petrobras

NexTier Oilfield Solutions Inc

Compared to Wall Street ratings, Seeking Alpha's Quant rankings are likely more objective and often provide a compelling contrast. While Wall Street rates HAL more favorably than NEX, Seeking Alpha's Quant rankings favor NEX over HAL.

NexTier Beats Haliburton On Value And Profitability

HOUSTON--(BUSINESS WIRE)--Halliburton Company (NYSE: HAL) today announced that Repsol implemented the Halliburton Landmark DecisionSpace® 365 Well Construction Suite as its preferred digital solution to automate and streamline its well design process. The deployment provides scalability, flexibility, integration, and third-party collaboration and accelerates the adoption of machine learning and artificial intelligence across the drilling and wells organization.

Repsol Accelerates Digital Journey with Halliburton Landmark to Automate and Streamline Its Well Design Process

Halliburton (HAL) was a big mover last session on higher-than-average trading volume. The latest trend in earnings estimate revisions might help the stock continue moving higher in the near term.

Strength Seen in Halliburton (HAL): Can Its 7.8% Jump Turn into More Strength?

Halliburton (HAL) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

Why Halliburton (HAL) Could Beat Earnings Estimates Again

Core Laboratories Inc

Schlumberger

Halliburton (HAL), Core Labs (CLB) and Schlumberger Ltd. (SLB) are likely to have been impacted by poor sentiment, rising costs, and weak prices in Q1.

Oil & Gas Service Firms Hit by Stalling Activity Levels in Q1

Marathon Oil

Occidental Petroleum

Oil stocks are on the rise  after the Organization of the Petroleum Exporting Countries (OPEC+) announced a surprise output cut of roughly 1.16 million barrels per day.

3 Oil Stocks Surging After Surprise Output Cut

Advance Auto Parts

Lowe's

Pfizer

Hudbay Minerals

Organon & Co

United Rentals

It's too early to say the market has turned the corner, but some analysts suggest that equities could be at the beginning of a bull market. The banking crisis appears to be contained.

7 Growth Stocks That Are Trading at a Bargain Price

HOUSTON--(BUSINESS WIRE)--Halliburton Company (NYSE: HAL) today announced that Petrobras will use the Landmark iEnergy® digital platform to address its subsurface challenges. The companies executed a contract that gives Petrobras access to the entire Halliburton Landmark DecisionSpace® 365 Geoscience Suite including cloud-based, next-generation technologies like Seismic Engine, Scalable Earth Modeling, Assisted Lithology Interpretation, DS365.

Petrobras Accelerates Digital Transformation with Halliburton's iEnergy® Cloud

Suzano S.A. - ADR

United Continental Hlds

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.

3 Oversold Large Caps With Rebound Potential

Halliburton's (HAL) subsidiary, Landmark, has secured a contract from Hess (HES) to use DecisionSpace 365 applications for its construction project.

Halliburton's (HAL) Subsidiary Wins Hess' Tech Contract

Alaska Air Group

Bio-Rad Laboratories

Delta Air Lines

GE HealthCare Technologies Inc

Jacobs Solutions Inc

Synopsys

Targa Resources

Vici Properties

Zoetis

Finding S&P 500 stocks that analysts agree on is rare. So when you see nearly unanimous agreement on some, that's quite a statement.

Analysts Agree Now's The Time To Buy These 10 Promising Stocks

Halliburton (HAL) and Honeywell's (HON) deals with NOC are a sign that Libya offers a more favorable working environment for American firms at present, with more predictable investment opportunities.

News for Halliburton Stock (HAL)