Halliburton Beats Q4 Earnings Estimates; Target Price $25 in Best Case

Halliburton, one of the world’s largest providers of products and services to the energy industry, reported better-than-expected earnings in the fourth quarter, largely driven by cost-cutting and recovery in business demand.

Halliburton reported a net loss of $235 million, or $0.27 per diluted share, for the fourth quarter of 2020. This compares to a net loss for the third quarter of 2020 of $17 million, or $0.02 per diluted share.

Adjusted net income for the fourth quarter of 2020, excluding impairments and other charges, was $160 million, or $0.18 per diluted share. That was higher than the market expectations of 15 cents per share.

The second-biggest services provider’s total revenue rose 9% to was $3.2 billion, up from revenue of $3.0 billion in the third quarter of 2020. Reported operating loss was $96 million in the fourth quarter of 2020 compared to reported operating income of $142 million in the third quarter of 2020.

“We view the strong results (Q4/20 EBITDA 8% better than consensus) as positive, with Halliburton (HAL) demonstrating that increasing activity should flow to the bottom line after completing its $1bn cost-out program in Q3/20,” said Waqar Syed, equity analyst at ATB Capital Markets.

“We think the key driver for HAL’s stock today will be guidance in the earnings call, if provided, but still think the results, high-level commentary, and supportive macro/commodity price environment should help the stock.”

At the time of writing, Halliburton shares traded nearly flat at $20.74 on Tuesday; however, the stock fell over 20% in 2020.

Halliburton Stock Price Forecast

Thirteen analysts who offered stock ratings for Halliburton in the last three months forecast the average price in 12 months at $18.84 with a high forecast of $25.00 and a low forecast of $12.00.

The average price target represents a -9.20% decrease from the last price of $20.75. From those 13 analysts, five rated “Buy”, six rated “Hold” and two rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $20 with a high of $25 under a bull scenario and $8 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the energy company’s stock.

Several other analysts have also recently commented on the stock. Cowen and company raised the target price to $28 from $24. Credit Suisse upped the price objective to $14 from $12.

In addition, Barclays increased the target price to $21 from $14. Stifel raised the target price to $26 from $18. Citigroup upped to buy from neutral; raises price target to $24 from $13.5.

Analyst Comments

“Relative positioning less favourable vs. some global peers: Though it has decreased in absolute size, Halliburton (HAL) still remains more NAm-focused vs. peers, where we see a higher relative risk of downward upstream capex revisions. Cost savings likely at their limit: HAL is winding down a major cost-cutting program, which suggests to us its ability to further cut overhead and significantly surprise on margins is relatively limited,” said Connor Lynagh, equity analyst at Morgan Stanley.

“Risk-reward relatively balanced: We see relatively balanced risk-reward for HAL’s shares and believe a more significant capex shift back into its core markets would be required for meaningful outperformance vs. the group.”

Check out FX Empire’s earnings calendar

Halliburton Posts Fourth Straight Loss in Q3 as Oil Rout Drags Demand

Halliburton Co, one of the world’s largest providers of products and services to the energy industry, reported a loss for the fourth consecutive time in the third quarter as demand slowdown due to the COVID-19 pandemic and lower oil prices have hurt businesses.

The U.S. largest hydraulic fracturing provider reported a net loss of $17 million, or $0.02 per diluted share, for the third quarter of 2020. This compares to a net loss for the second quarter of 2020 of $1.7 billion, or $1.91 per diluted share. Adjusted net income for the third quarter of 2020, excluding severance and other charges, was $100 million, or $0.11 per diluted share.

Halliburton’s total revenue in the third quarter of 2020 was $3.0 billion, a 7% decrease from revenue of $3.2 billion in the second quarter of 2020, the company said.

At the time of writing, Halliburton shares traded 3.55% higher at $12.68 on Monday; however, the stock is down about 50% so far this year.

Its rival, Schlumberger reported a loss for the third consecutive time in the September quarter as a prolonged period of lower crude prices due to COVID-19 disruptions caused clients to suspend drilling activities.

Executive comments

“The pace of activity declines in the international markets is slowing, while the North America industry structure continues to improve, and activity is stabilizing. We have a strong international business, a lean North America operation, and an efficient capital deployment strategy, all enabled by continued adoption of leading digital technologies that benefit our customers and Halliburton,” said Jeff Miller, Chairman, President and CEO.

“We believe executing on our strategic priorities will boost our earnings power reset and free cash flow generation today and as we power into and win the eventual recovery,” concluded Miller.

Halliburton stock forecast

Seventeen analysts forecast the average price in 12 months at $15.28 with a high forecast of $22.50 and a low forecast of $11.50. The average price target represents a 21.80% increase from the last price of $12.55. From those 17 equity analysts, five rated “Buy”, 11 rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $14 with a high of $20 under a bull scenario and $4 under the worst-case scenario. Halliburton’s stock price forecast has been raised by equity research analysts at Cowen and Company to $20 from $19.

Several other analysts have also recently commented on the stock. BMO Capital Markets initiated coverage on Halliburton, issuing a “market perform” rating and a $14 price objective for the company. Goldman Sachs Group raised Halliburton from a “buy” rating to a “conviction buy” rating in August. HSBC increased their stock price forecast to $13.70 from $9.50 and gave the company a “hold” rating in July.

Analyst Comments

“Outsized exposure to deteriorating North America (NAm) markets impacts Halliburton’s results more meaningfully vs. less exposed peers, in our view, and we continue to see greater downside revision risk for those focused on this market. Few bullets left to offset deteriorating fundamentals: Halliburton is winding down a major cost-cutting program in NAm, which suggests to us its ability to further cut overhead as US activity trends lower is limited,” said Connor Lynagh, equity analyst at Morgan Stanley.

“We believe the company’s exposure to areas in high demand (i.e. Ventilators, Patient Monitoring, CT and X-Ray) puts the company in an attractive risk-reward positioning relative to other companies in our sector over the next 12 months.”

Upside and Downside Risks

Upside: 1) Signs of a bottom in NAm pressure pumping activity and pricing. 2) International contract awards. 3) Bolt-on M&A – highlighted by Morgan Stanley.

Downside: 1) Further pricing pressure and activity declines, particularly in Nam. 2) Undisciplined project bidding. 3) Failure to deliver on cost savings goals. 4) Commodity price/cyclical risk.

Check out FX Empire’s earnings calendar

Middle-Week Screening. Seesaw on the Market. Silver and Alibaba are for long; Boeing is for short

Overview and trends

Across the pond, according to Reuters, European Union leaders did not reach solidarity on a coronavirus stimulus plan on Sunday, German Chancellor Angela Merkel said as marathon negotiations ran into a third day and acrimony mounted over the demands of rich but thrifty countries.

On Monday U.S. officials including Senate Majority Leader Mitch McConnell and Treasury Secretary Steven Mnuchin met in the White House to discuss another coronavirus stimulus package. Mnuchin reiterated he wanted to put a cap on spending to about 1 trillion dollars, well below House Speaker Nancy Pelosi’s $3.5 trillion relief plan. He also said the bill will focus on “kids and jobs and vaccines.” Meantime U.S. stocks were higher Monday as Wall Street came off its third straight week of gains and investors turned were busy analyzing more earnings reports including those from Halliburton and IBM (the latter beat estimates by a wide margin and added over 3% in post-market).

Yesterday stocks closed mostly higher on Wall Street Tuesday despite a final hour hiccup that nearly wiped out the market’s gains for the day. The S&P 500 added less than prominent 0.2%, after culminating as much as plus 0.8%. Banks, telecoms and energy stocks led the gains, offsetting mounting losses in technology stocks – something every smart investor must take seriously in the wake of more big techs’ like Apple, Amazon and Microsoft earnings underway – which pulled the Nasdaq index lower.

Oil prices joined precious metals’ extravaganza and rose, reaching the highest levels since March. West Texas Intermediate crude gained more than 3%, to 41 dollar 88 cents per barrel. Brent crude, in its turn, rose almost 3%, to 44 dollars 30 cents per barrel, at the U.S. market close.

Most investors wait as a savior for more financial stimuli from big governments and central banks to prop up stocks and bonds that are slowly losing steam.

Seemingly in response to that urge, many governments have already announced large amounts of additional fiscal support to keep tackling the pandemic. But S&P Global Ratings suggests that some countries, including the U.S., have shown “a degree of fiscal fatigue”. The problem is that additional spending will worsen the governments’ balance sheets, but they are still necessary to “prevent things from getting even worse.”

S&P Global Ratings earlier this month downgraded its forecast for the global economy. The agency now expects global GDP to shrink by 3.8% this year — worse than the 2.4% contraction it previously projected. So the central banks and governments really have little choice but to move on.

The end of the coronavirus pandemic could bring a large number of new asset managers. Recently published data from a research firm called eVestment showed that the number of new investment firm launches substituting some less lucky rivals tends to spike following economic crises.

Here’s why, according to data firm: As markets contract, asset management employees may be laid off. Instead of seeking out a new job, they start their own firms. Additionally, some of these employees leave their jobs voluntarily, with the goal of taking a new investment approach presented by market turmoil.

Conclusion: in order to survive hard times, one needs to be open to new trends and must possess the skill of distinguishing between winning and losing assets.

Trading ideas

Silver futures logged the highest finish in nearly 4 years at the beginning of the week, buoyed by expectations for further central bank stimulation that destroy the value of world major currencies and as the rise in global COVID-19 cases continues to threaten the economic recovery. September silver added almost a dollar, or 4.9% since July 17, to settle at $20.21 an ounce, the highest front-month contract finish since August 2016. Silver is known to be more choppy and volatile precious metal as compared to gold. But this year its uncharacteristic trade smoothness since mid-March leaves its older sister gold’s parameters derailed.

Alibaba’s affiliate company Ant Group, operating the mobile payment service Alipay, reportedly started the process of its initial public offering on the Hong Kong Stock Exchange and Shanghai’s Nasdaq-style STAR market simultaneously. In China Alipay is much more prominent than the namesake portal (alibaba.com) of Alibaba Group. Ant was previously valued at $150 billion after its last funding round in 2018, making it the world’s most valuable start-up.

Reportedly, Ant generated about 120 billion yuan or $17.1 billion dollars in revenue and nearly 17 billion yuan or $2.4 billion dollars in net profit last year. This is very good news for Alibaba stock which rose over 50% since April. Its earnings reporting day is scheduled for August 13, so there is plenty of time to judge this event keeping the stock in the portfolio.

Boeing’s reputation remains under siege even after the much-advertised test flight of Boeing 737 MAX couple of weeks ago. The company was forced to release a catastrophically damning set of documents to congressional investigators last week that included “conversations among Boeing pilots and other employees about software issues and other problems with flight simulators” for the 737 Max, the plane involved in two fatal crashes. The messages further complicate Boeing’s tense relationship with the Federal Aviation Administration, which can’t be satisfied to read the disdain with which Boeing treated the civil aviation regulators.

After the undisclosed outcome test flight, the Boeing share edged up almost 6.5% to $176, but its quarterly earnings date of July 29 will be Boeing’s judgement day, because there is nothing to cheer up its shareholders with. The company reported net loss of $5.72 a share in the previous quarter, which is expected to further deepen this time around, so Boeing is a definite short, which will be easy to cover at a profit thereafter.

For a look at all of today’s economic events, check out our economic calendar.

By Vladimir Rojankovski, Grand Capital Chief Analyst