Halliburton Will See Better Times Soon

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Feb 17, 2015
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The world of oil is experiencing a crunch in their prices since June 2014. The global supply glut and the weak demand have suppressed the prices down. Halliburton (HAL, Financial), the American multinational giant is the second largest oil field services company in the world. As a reflective to a difficult environment for the survival of crude oil companies, Halliburton experienced a 30% dip in the stock price from July 2014 to October 2014. And then the stock started to recover with almost 20% recovery in November last year but as the oil market was not experiencing the age-old good days; hence the company’s stock began to plummet again.

Halliburton went on a roller coaster ride last year when it experienced the overbuying of its stock, followed by the over selling and soon after came the 360 degree turn when the shares were in the mid-range term of overbuying/overselling. One needs to see from the point of view of an investor as to what they saw in that time period, we normally have two attitudes of looking at the company, one being the optimistic one and the other is pessimistic outlook.

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Bulls remained invested and saw…

  • An enterprise that’s valued above $50 billion.
  • A price to book ratio above 2.0.
  • A price to sale ratio below 1.5.
  • A 10.69% net profit margin.
  • Annual dividend yield at 1.3%.

Bears were interested in selling and saw…

  • The overall market condition had a bearish setup for both the crude oil industry and Halliburton.

The company knows how to survive

No matter what the bears saw, Halliburton stock does have the potential to bounce back. The company has 95 years of glory and history and a management that knows how to shelter their company when it rains so heavily out. The company’s successful merger with Baker Hughes (BHI, Financial) better known as the Halliburton/Baker Hughes ‘mega-merger’ has reported an outstanding performance. Baker Hughes is the company that defeated the expectation of the Wall Street and reported the profits of $663 million- that’s almost $450 million above the expected range or can be better said as earning $1.52 per share. This association of $35 billion is expected to do wonders for Halliburton. To get through the difficult situation the companies are starting with their first lay-off session. Almost 8% of the work force will be laid-off in response to the plummeting oil prices. Every oil company has announced between 15 to 30% of employees being laid off in their budget because of the more than 50% drop in the crude oil price since June of last year.

According to one of the BBC reports, Halliburton has reported a profit of $901 million for its fourth quarter; it’s a rise by around 14% when compared on a year-over-year basis. The company is sure about the stock rebound in the game, but might take another dip as the oil prices are still declining. But the company’s smart management has foreseen the worst that is about to happen and are prepared to implement cost-cutting measures accordingly in order to keep profits in place.

Though there has been a recent 20% recovery in the crude oil price it is not sustainable in the near future. Reports have projected that oil prices can still fall below $40 a barrel for the west Texas intermediate and as low as $20 before the actual ‘U’ turn and the revival of the prices in the industry.

Dave Lesar, Chairman and CEO of the company, despite of earning profits warned by saying that the year 2015 will be a challenging one for the industry. The statement accompanying the earning statement is a sure sign that the industry will soon witness an era of distress and only the companies that have foreseen the fact will survive through it. Halliburton said that the job cuts include the previously announced plans to cut around a thousand jobs outside the United States.

Final word

The enterprise is a huge giant and also smart enough not to fall down on the knees to the bad times in the market. The flight of Halliburton is experiencing a storm and the smooth flight is expected to go through some trembling but the storm will soon calm down and Halliburton will catch its pace. The company’s stock is surely going to rebound in the market but the duration of the storm might take this entire year to settle down. So let’s stay tuned and keep watching.