Halliburton (HAL) Down 6.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Halliburton (HAL). Shares have lost about 6.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Halliburton due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Halliburton Q4 Earnings and Revenues Top Estimates

Halliburton Company delivered better-than-expected fourth-quarter earnings as robust international activity offset headwinds in North America.

The world's second-largest oilfield services company after Schlumberger reported earnings of 32 cents per share, surpassing the Zacks Consensus Estimate of 29 cents. However, the bottom line was 22% lower than the year-ago figure of 41 cents.

Operating loss incurred by Halliburton was $1.7 billion against $608 million operating income for the same period last year.

Meanwhile, revenues of $5.2 billion were 12.55% lower than the year-ago quarter but topped the Zacks Consensus Estimate of $5.08 billion. North American revenues plunged 30.3% year over year to $2.3 billion. However, revenues from Halliburton’s international operations rose 11.54% from the year-ago period to $2.9 billion, an area that continues to exhibit growth momentum.

Management’s Outlook

The world’s biggest provider of hydraulic fracking noted that although North American activity levels in the fourth quarter ramped down, the company continues to successfully ride on the changing market dynamics through excellent execution and management of the controllable factors.

Notably, Halliburton is witnessing a broad-based, steady recovery in its international business. This is clearly reflected by the 10% increase in the region’s year-over-year sales. The company still anticipates its international revenues to grow in 2020 owing to expanded activity, judicious capital spending, pricing gains to complement Halliburton’s emphasis on high-margin businesses.

Even as the company persistently battles a challenging business landscape in North America, it is looking to boost free cash flow generation and improve returns.

Segmental Performance

Operating income from the Completion and Production segment came in at $387 million, falling 22% below the year-ago level of $496 million but beating the consensus estimate of $366 million.

The division’s performance was affected by weakness in activity and pricing across multiple product service lines in the North American land sector, tepid stimulation activity in Latin America and lowered well intervention services in the Middle East/Asia. These negative impacts were partly offset by excellent outcomes from the Eastern Hemisphere cementing business and improved pressure pumping activity, increased completion tool sales globally.

Drilling and Evaluation unit profit rose from $185 million in the fourth quarter of 2018 to $224 million in the corresponding period of 2019. However, the segmental income fell shy of the Zacks Consensus Estimate of $258 million.

The segmental results were primarily driven by higher drilling activity in Europe/Africa/CIS coupled with year-end software revenues worldwide and product service lines activity in the Middle East/Asia. The positives were partly offset by lower activity across a number of product service lines in North America as well as a decreased testing activity in Latin America.

Balance Sheet

Halliburton’s capital expenditure in the fourth quarter was $340 million. As of Dec 31, 2019, the company had $2.3 billion in cash/cash equivalents and $10.3 billion in long-term debt, representing a debt-to-capitalization ratio of 56.24%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 8.81% due to these changes.

VGM Scores

Currently, Halliburton has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Halliburton has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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