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Halliburton (HAL) Nearing 52-Week Low: What Should Investors Do?

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Shares of Halliburton Company (HAL - Free Report) have dropped by more than 15% over the past three months to close at $31.85 on Monday, near 52-week lows of $30.31. Underperforming the sector and the S&P 500, the drop can be attributed to weaker North American activity and a lower margin outlook.

3-Month Price Performance

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On the surface, the current share price seems an excellent opportunity to build a position in a renowned company — after all you would much rather buy closer to the low than the high, right? However, 

Let’s now take a close look at Halliburton, with an eye on where it stands after falling so much, along with what we can expect going forward.

Understanding the Company

Houston, TX-based Halliburton Company is one of the largest oilfield service providers in the world, offering a variety of equipment, maintenance, and engineering and construction services to the energy, industrial and government sectors. The company operates in over 80 countries. Founded in 1919, Halliburton employs more than 40,000 people and operates under two main segments: Completion and Production, and Drilling and Evaluation.

Halliburton’s North American Woes

Let's be clear, Halliburton is a top-tier operator, which continues to have a market-leading presence in the North America pressure pumping operations. Meanwhile, the company's international business is poised for impressive growth in 2024 due to its global competitiveness across products. Besides, Halliburton's strong free cash flow generating ability indicates its financial strength. Its healthy relationship with national oil companies and digitization efforts also bode well. However, these positives are overshadowed by several near-term challenges.

The biggest risk for the oilfield service provider stems from the significant headwinds in the U.S. market, with reduced activity in key natural gas basins leading to lower revenue expectations. Drilling and fracturing activity have declined due to a shift toward capital return over production growth by U.S. oil and gas producers. This reduced outlook is likely to suppress overall revenue growth and limit short-term profitability. 

Halliburton’s revenues from North America declined by 3% sequentially to $2.5 billion in the second quarter of 2024, driven by decreased pressure pumping services in U.S. land and lower completion tool sales and testing services in the Gulf of Mexico. 

Demand for Halliburton's legacy diesel-powered frac fleets has decreased more than anticipated, even as the company continues to benefit from its new Zeus electric frac fleets. In response, Halliburton has reduced its legacy frac capacity by moving equipment overseas and retiring several units. This adjustment highlights a mismatch between existing equipment and market demand, potentially impacting the company’s operational efficiency and profitability.

Assessing Halliburton’s Path Forward

The company anticipates a 6% to 8% decline in full-year North America revenues from 2023, due to continued lower rig counts and service activity levels. HAL is also witnessing southbound earnings estimate revisions for the current and the next year over the past 30 days.

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Halliburton is a component of the Zacks Oil and Gas Field Services industry, which currently ranks in the bottom 15% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next few months.

The gloomy outlook for the short term has pushed the Halliburton stock lower.

What Does Halliburton’s Valuation Suggest?

From a valuation perspective, while Halliburton might appear attractive relative to the industry, it is still trading above its 5-year low. Going by the price/earnings ratio, the company is trading at a forward earnings multiple of 9.43, higher than its 3-year low of 8.31. We don’t think that this premium is justified given the company’s softening North American activity and pressure on margins.

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Investors should know that HAL’s operations are more heavily weighted toward North America than those of its peers SLB (SLB - Free Report) and Baker Hughes (BKR - Free Report) , leaving it more vulnerable to the regional weakness than its rivals. About 40% of Halliburton's business revenues are in North America compared to some 20% for SLB and 25% for BKR.

Final Word

Halliburton has really been beaten down in recent months and is currently floating around its 52-week low. On top of this, falling earnings estimates will likely serve as a ceiling to any potential rallies. The fact that HAL is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. Therefore, potential investors may want to give this stock the cold shoulder.

Halliburton currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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