Halliburton Is in Good Shape
- By Harsh Jain
Oil prices have been volatile over the last two years which has been reflected in oil companies' share prices. However, with oil prices not stablizing, investors can consider buying several stocks in the sector to bet on a turnaround. One of my favorite picks is Halliburton (HAL).
In the second fiscal quarter, Halliburton reported earnings per share of -14 cents, 5 cents better than the estimates, whereas revenue came in at $3.48 billion, $90 million greater than the estimates. That figure represents a decline of 9% compared to a 19% drop in the global rig count.
Warning! GuruFocus has detected 7 Warning Signs with HAL. Click here to check it out.
The intrinsic value of HAL
Furthermore, the company said its operating income plunged 72%, mainly because of the endured decline in the worldwide activity in pricing, and the re-establishment of depreciation expense for its formerly held-for-sale assets.
While most of the regions delivered loss, the company saw escalated activity in Kuwait and comparatively steady activity in Saudi Arabia. Apart from this, in Europe Africa CIS, the revenue surged 2% and operating income escalated 12% primarily due to the seasonal recovery of activity in Russia and the North Sea.
As an outcome, despite the weak environment, the company managed to beat earnings as well as revenue estimates whereas many other companies are still struggling to maintain in the industry.
Still in the game
Halliburton faced many problems in 2015, but most significantly, after trying for 18 months, the company was forced to terminate its chase of opponent Baker Hughes (BHI) because of regulatory concerns. On top of that, the company has been through a noteworthy slump in its business mainly due to the severe decline in the price of oil.
Oil prices have recovered from their lows but still are down considerably compared to 2014. Moreover, Standard & Poor's Global Ratings increased its price estimate for crude oil (WTI) for the rest of 2016. It now expects crude oil averaging $42.50, up from a prior forecast of $40.
With oil prices starting to recover, oil producers are strategizing to put rigs back to work. As a matter of fact, more rigs working will boost higher service volumes for Halliburton, which will sooner or later lead to enhanced margins.
All in all, the recovery in oil prices together with the company's focus on enhancing its feebleness should produce strong returns for stockholders during the subsequent up cycle of the oil market.
Conclusion
Oil prices are slowly inching higher and Halliburton stands to benefit. The company should execute a successful turnaround with increase in oil prices, thereby making the stock a buy.
Disclosure: No position in any of the stocks.
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This article first appeared on GuruFocus.
Warning! GuruFocus has detected 7 Warning Signs with HAL. Click here to check it out.
The intrinsic value of HAL
