With Halliburton (HAL) not joining the broader market rally recently, I decided to take a closer at the company to see if it is an attractive opportunity. Here are six points I looked at while researching Halliburton:
Valuation: Halliburton’s trailing 5 year valuation metrics suggest that the stock is undervalued as the metrics are all below their respective 5 year averages. Halliburton’s current P/B ratio is 2.7 and it has averaged 3.6 over the past 5 years with a high of 6.1 and low of 1.7. Halliburton’s current P/S ratio is 1.5 and it has averaged 1.8 over the past 5 years with a high of 2.8 and low of 0.8. Halliburton’s current P/E ratio is 13.2 and it has averaged 15.3 over the past 5 years with a high of 27.9 and low of 6.9.
Price Target: The consensus price target for the analysts who follow Halliburton is $52.50. That is upside of 45% and suggests that the stock is significantly undervalued and has room to run from these levels.
Forward Valuation: Halliburton is currently trading at $36 a share and analysts expect the company to report earnings of $4.13 per share next year for a forward P/E of 9. Revenues are projected to grow 16%. Taking a look at what competitors trade at will provide a better idea of Halliburton’s relative value. Schlumberger (SLB) is trading for a forward P/E of 14, with analysts projecting revenue growth of 16% next year. National Oilwell Varco (NOV) is trading at $73 a share and has a forward P/E of 12, with revenues projected to grow 21%. Baker Hughes (BHI) is currently trading at $48 a share and has a forward P/E of 9 with revenues projected to grow 15%. The mean of the three oil stocks is a P/E of about 12, which suggests that Halliburton is undervalued relative to other publicly-traded comps.
Earnings Estimates: Halliburton has met earnings estimates the past four quarters, with margins ranging from 2-7 cents or 2-10% from analyst estimates. If the company is able to report earnings 10% higher than analysts’ estimates, that may serve as a catalyst for the stock.
Dividend: Halliburton pays a quarterly dividend and has paid one since 1982. It currently pays 9 cents a quarter for an annual dividend of 36 cents or about 1%. The dividend last rose in 2007 when the company boosted its quarterly dividend from 7.5 cents a share to 9 cents a share.
Price Action: The stock has been in a funk for the past few months. After rallying nearly 50% from $38 in January to over $56 a share in July, the stock fell apart, falling 50% to below $28 a share in October. Since then, the stock has traded in the $30-40 range. Halliburton is above its 50 day moving average, which sits just below $35, and below its 200 day moving average, which is just below $42. Resistance on the upside includes $38 followed by $40. On the downside, the $34 and the $32 level should provide solid support.
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Conclusion: All of the stars align for Halliburton as analysts, the trailing valuations metrics, and the forward valuation metrics suggest that the stock is undervalued. With it being correlated with the economy because of the higher demand for oil in an economic expansionary period, Halliburton at these prices is a good bet to move higher.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
