Buy Haliburton On Post-Earnings Weakness

Haliburton Pulls Back Despite Robust Outlook

Shares of Haliburton NYSE: HAL are pulling back from a long-term high and we think it is setting up the next buying opportunity for the stock. The main driver of the pullback is sentiment and profit-taking because the Q1 results, as good as they are, were barely more than what the market expected. The takeaway for us is that Haliburton had a strong Q1 report and gave a robust outlook for itself and the oil-services market in general. In our view, this market may consolidate at the current levels, it may pull back to retest for support, but it is moving higher and will reclaim the $50 level if not move well above it. 

“We see significant tightness across the entire oil and gas value chain in North America. Supportive commodity prices and strengthening customer demand against an almost sold-out equipment market are expected to drive expansion in Completion and Production division margins."

Haliburton Business In Multiyear Upcycle 

Haliburton put in a strong quarter driven by what the CEO describes as a multi-year upcycle for the industry. The only bad news is that expectations were running so high coming into the report the $4.28 billion in revenue, which is up 24% from last year, only beat the Marketbeat.com consensus by 190 basis points. The gain was driven by a 26% increase in Completion and Production revenue, the lion’s share of the net, coupled with a 22% increase in Drilling and Evaluation revenue. On a regional basis, North America's revenue rose by 37% followed by a 22% increase in Latin America, a 17% increase in Mideast/Asia, and a 7% increase in Europe/Africa.

"First quarter revenue growth in all our international regions together with North America demonstrates that this multi-year upcycle is well underway," CEO Jeff Miller said.

Moving down to the margin, the company reported a 44% increase in operating income driven by margin expansion in both segments. The Drilling and Evaluation segment, it is worth noting, saw its margin wide to the highest levels in 12 years, and strength is expected to continue given the demand environment. On the bottom line, the net income rose to $263 million from last year’s $170 million to drive $0.35 in adjusted EPS. The adjusted EPS is nearly double from last year and beat the consensus by a penny. 

The Analysts Are About To Upgrade Haliburton 

The analysts rate Haliburton a weak Buy but we think that is going to change soon. The trend in both sentiment and price is higher and both are likely to continue that trend now the Q1 results are out. The only bad news we can give is the Marketbeat.com consensus price target is about 30% below the current price target but we think that situation will change too. In our view, Haliburton should be trading closer to the high price target of $45 which is the most recent target. 

The Technical Outlook: Haliburton Sets New High 

Price action in Haliburton set a new high before it pulled back and may extend the trend without consolidation or a pullback. In that scenario, price action could move up to the $50 level before it encounters stiff resistance. The more likely scenario is, however, for the stock to at least consolidate at this level so we are expecting to see more sideways action over the next few days at least. A move below $40 might result in a test of the 30-day EMA.