Seeking Alpha
Special situations, growth at reasonable price, tech, biotech
Profile| Send Message|
( followers)  

Summary

  • Halliburton's fleet upgrades should increase its capacity to serve customers.
  • Halliburton is benefiting from positive cues in the end market such as energy reforms in Mexico.
  • Halliburton's focus on technology should help it gain more customers.
  • Halliburton's attractive valuation and recent project wins make the stock an enticing pick.

Oilfield services company Halliburton (NYSE:HAL) is on a tearing run this year. Its shares have comprehensively outperformed the market, gaining more than 35% so far in 2014. Halliburton is seeing tremendous growth in the business, and reported record revenue in the recently reported second quarter. The company is benefiting from productivity gains in North America and the Eastern Hemisphere. Looking ahead, the company's performance can improve further, driven by the positive moves that it is making. Let's see why.

Fleet upgrades and improving prospects

Halliburton is upgrading its fleet to Q10s to drive home the competitive advantage of its Frac of the Future plan. The incremental fleets will arrive in the fourth quarter and throughout 2015. Halliburton recognizes the fact that now is the appropriate time to accelerate its Q10 build schedule, and also ramp its logistics capability. With these moves, the company should be able to serve a larger number of customers.

In fact, Halliburton is already gaining solid traction. The company's Eastern Hemisphere operations are expanding at a steady rate, in line with its own expectations. This steady rate of expansion illustrates that the company is well-positioned and scoped correctly to deliver industry-leading revenue growth and steadily increasing margins.

There are encouraging prospects from energy reforms in Mexico. As a result, Halliburton believes that service activity will gain traction as the market becomes more certain regarding the direction of reform. In Brazil, one of Halliburton's customers decided to re-tender the deepwater drilling contract, which is expected to help the company in right-sizing its footprint there.

Moreover, Halliburton's strong business in North America will allow it to benefit from an expansion of the oil and gas industry in the U.S. Management is deeply focused on steady execution, generating better financial performance, and providing industry-leading returns to shareholders.

Smart strategies and innovation

Halliburton's sharp focus on the deepwater, mature fields, and unconventionals have helped it deliver solid revenue. The company is seeing growth in production enhancement, baroid, cementing, wireline, production chemicals, and artificial lift product lines. The strategy of Halliburton is to deliver the lowest cost per barrel of oil equivalent through surface efficiency, custom chemistry, and subsurface insight. As a result of these characteristics, its services have gained traction.

Also, the company has seen record sales of its drill well plugs for plug-and-perf operations, in addition to record installations of its RapidSuite sliding sleeve technology.

Halliburton's subsurface segment is getting better with its CYPHER platform, which optimizes where to drill, how to drill, where to frac, and how to frac to make better wells. CYPHER applications are being adopted by customers at a solid rate, with more than 50 projects spread across more than a dozen basins globally. Also, the recent release of CYPHER 2.0, which modifies earth-modeling capability, raises the simulation accuracy and enables for real-time adjustments during frac treatments.

Halliburton's Custom Chemistry solutions are helping deliver better wells. The AccessFrac diversion technology, clean breaking PermStim, and RockPerm formation analysis of Halliburton have all demonstrated better production and proved efficient for its clients.

Landing more projects

No doubt, Halliburton's innovation appears to be on the right track. As a result, the company is seeing solid progress in large IPM (Integrated Project Management) and asset management projects in the mature field space. Recently, Halliburton has either been rewarded or has started mobilizing on large integrated projects in India, Kuwait, UAE, and Indonesia.

For instance, its 93 well integrated project with Cairn India is the first IPM project in the country that employs tier 1 land rigs. These projects provide a robust platform for growth, coupled with a pipeline of over 30 billion in project management opportunities that the company is currently evaluating.

Halliburton has also started work on the multi-decade Humapa incentivized asset management project in Mexico. It expects to dig new wells in this asset during the second half of 2014, completing two rigs by the end of the year. Further, in Mexico, Halliburton has dug the first well in the Mesozoic project in late June, and expects its second well to be dug in late July. The Mesozoic project represents a $1 billion opportunity over the next few years.

Terrific valuation

Clearly, Halliburton has got solid prospects. But, what makes the stock even more impressive is the fact that it trades at an enticing valuation. Halliburton has a trailing P/E of 23.50, while its forward P/E stands at 13.77. Moreover, its PEG ratio of 0.86, better than the industry's average of 1.09, indicates that Halliburton is undervalued. Then again, Halliburton is expected to grow its earnings at a CAGR of 20.80% for the next 5 years, above the industry's average of 18.35%.

It won't be surprising if Halliburton continues to outperform going forward and sustain its terrific run as the company has solid prospects, and it is still valued attractively.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Why Halliburton Should Continue Outperforming The Market