Please ensure Javascript is enabled for purposes of website accessibility

Halliburton’s Stock is Ready to Rock

By Matthew DiLallo - Apr 19, 2013 at 4:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Halliburton investors need to look past next week's earnings and stay focused on the big picture.

As I write this, most Halliburton (HAL 2.99%) investors are anticipating the company's earnings release on Apr 22. While that report is important, it's just a snapshot of how a business is doing. All too often, the information is digested, and the stock has reacted before the average investor has actually read the report.

Instead, what's more important than the numbers that the company ends up reporting is the business trends that it's seeing. We're in the midst of a multi-year growth story when it comes to shale gas and oil, as well as continued success with deepwater drilling. That being said, there are both positives and negatives that directly affect Halliburton and the future performance of its stock.

On the plus side, exploration and production companies are going to be spending billions of dollars to develop these oil and gas resources across the globe. ExxonMobil, for example, plans to invest $190 billion over five years, which is an amount that CEO Rex Tillerson said, "I never dreamed I'd be spending at this level." These elevated levels of capital spending leads to a massive opportunity for oil-field service companies like Halliburton.

Unfortunately, for the oil-field service industry, at least, the industry is becoming much more efficient. Heckmann CFO Jay Parkinson really put things into perspective on the company conference call last month. He said that: "Drilling efficiencies are changing the industry landscape. Put quite simply, more wells are being drilled with less money and with less rigs." Not only that, but Halliburton specifically faced headwinds last year with guar costs, pricing pressures, and a significant drop in natural gas rig activity.

However, those headwinds appear to be priced into the stock, and all signs are pointing toward a very positive 2013. Take a look at what Parkinson went on to say in that call:

We see 2013 as being back half weighted. In some ways, it may look like a mirror of 2012. Activity is going to ramp up throughout the year. Let me give you some anecdotal evidence here. A major customer of ours has announced in 2013 they intend, in a specific basin, on drilling 175 wells. They've said publicly 70 of those wells are going to be in the first half of the year. So 40% in the first half. And of the remaining 105 in the second half, or 60%. I would say that I think this is consistent with our weighting in terms of how we think the pickup is going to look like in 2013 for our results.

If you match that statement with something Halliburton CEO David Lesar said in its last conference call, Halliburton stockholders will find reason to think that Halliburton is ready to take off. Lesar said that: "I want to be clear before you listen to the rest of the presentation. We believe that the fourth quarter marked the bottom for U.S. land margins." Taken together, that means that not only should overall industry activity pick up throughout the year, but margins specific to Halliburton should, as well.

Further, when you look at Halliburton's stock, and compare it to its peers Schlumberger and Baker Hughes you'll see a stock that's trading much cheaper on a relative basis. Halliburton's stock is trading at about 13 times earnings, while Schlumberger's is at 17 while Baker Hughes is at 15.

The bottom line here, when you look at Halliburton against its peers, it has two key drivers. First, it's getting past its own specific issues, which have held back profits; and second, its stock is much cheaper on a relative basis. When you put these factors with the overall industry trends, you can see that, no matter what Halliburton's stock does when the company reports earnings next week, this is a stock that's ready to rock.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Halliburton Company Stock Quote
Halliburton Company
HAL
$41.36 (2.99%) $1.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
356%
 
S&P 500 Returns
124%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.