Even if a stock shows an impressive run on the bourse, some investors feel jittery about adding it to their portfolios, thinking there is not much upside potential left. While this is true in certain cases, a high-flying company may still consider the stock to be a meatier option for bargain right now.
In case of oilfield service company Halliburton Company HAL, there are seven good reasons to place it as an attractive bet, more so when it is already on an upswing. While the unprecedented demand crisis due to coronavirus and the sector’s extreme volatility are responsible for the understandable reluctance on investors’ part to dip their toes into these stocks, Halliburton not only seems better positioned but is also expected to emerge from the current downturn relatively unscathed.
Therefore, if you are still contemplating how to capitalize on this stock price rally, it’s time that you tap the invest opportunity at your disposal. Let’s weigh the factors why Halliburton has enough momentum to carry on with.
What Makes It a Promising Pick?
A glance at the company’s share price trend reflects that the stock has fared well in the past three months. Shares of Halliburton have rallied 11% compared with the 5.7% increase of its industry.
Halliburton is one of the largest oilfield service providers in the world currently and carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stellar Q2 Performance
Halliburton delivered better-than-expected second-quarter 2020 earnings as both the Completion and Production segment and the Drilling and Evaluation segment surpassed the Zacks Consensus Estimate.
The company reported earnings of 5 cents per share. The Zacks Consensus Estimate was of a loss of 11 cents per share.
Northward Estimate Revisions
The direction of estimate revisions serves as a key indicator of stock movement. The Zacks Consensus Estimate for Halliburton’s 2020 earnings has been revised upward against a loss estimate of 13 cents per share to a profit of 8 cents over the past 60 days while the same for 2021 has moved north against a loss of 6 cents to a profit of 54 cents.
Positive Earnings Surprise History
This Houston, TX-based company has a decent surprise record. Its earnings surpassed the Zacks Consensus Estimate in three of the preceding four quarters and met the mark on one occasion, the average beat being 44.95%.
Strong Balance Sheet
The company exited the second quarter with cash and cash equivalents worth $1.81 billion, improving from the year-ago level of $1.39 billion.
Halliburton’s cash outflows as capital expenditure continue to fall as the company reins in its spending levels. For 2020, the company intends to reduce its capital budget by almost 50% to $800 million. This, in turn, should push the company’s free cash flows higher.
Halliburton enjoys strong relationships with the national oil companies worldwide that boast long-term prospects. Moreover, a sizeable proportion of its international projects that lies offshore and has been sanctioned over the past few years is difficult to get rid of suddenly.
The company’s digitalization services gain a consistent traction. Together with TechnipFMC, Halliburton recently announced the launch of Odassea, the first distributed acoustic sensing solution for subsea wells. It also collaborated with Microsoft and Accenture in a five-year agreement to enhance its digital capabilities. Further, the company embarked on a policy of transition to replace its physical site equipment with software solutions.
The overall depth of Halliburton’s global oilfield service franchise is evident from its free cash flow generation of $456 million in the second quarter. The company’s ample cash flows provide it with the flexibility to pursue a growth-oriented initiative.
Even as the company relentlessly battles against a challenging business landscape in North America, it is looking to boost free cash flow generation and improve returns. This industry player maintains an efficient North America service delivery improvement strategy, a prudent capital management policy and a responsible and competent team. The steady deployment of cutting-edge digital technologies will enhance Halliburton’s operational excellence and aid its cost-saving efforts to bode well both for the company as well as its customers. Importantly, Halliburton will not only gain traction from its key concerted efforts but also continue to monitor the commodity price movement, further adjusting itself to the revised capex plans in response to a volatile price scenario.
Other Key Picks
Some other top-ranked stocks in the energy space are Royal Dutch Shell plc. RDS.A, TC PipeLines, LP TCP and Concho Resources Inc. CXO, each carrying the same Zacks Rank as Halliburton at present.
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Halliburton Company (HAL) : Free Stock Analysis Report
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