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Halliburton Co. (NYSE:HAL) reports preliminary financial results for the quarter ended 2012-09-30.

Halliburton Co. recently reported its preliminary financial results, based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last 12 months (unless stated otherwise).

Halliburton Co.'s analysis versus peers uses the following peer-set: Schlumberger Ltd. (NYSE:SLB), National Oilwell Varco Inc. (NYSE:NOV), Baker Hughes Inc. (NYSE:BHI), Cameron International Corp. (NYSE:CAM), Technip S.A. ADS (OTCQX:TKPPY), Weatherford International Ltd. (NYSE:WFT), Oceaneering International Inc. (NYSE:OII), Dresser-Rand Group Inc. (NYSE:DRC), Superior Energy Services Inc. (NYSE:SPN), and SEACOR Holdings Inc. (NYSE:CKH). The table below shows the preliminary results, along with the recent trend for revenues, net income and returns.

Quarterly (USD million)2012-09-302012-06-302012-03-312011-12-312011-09-30
Revenues7,111.07,234.06,868.07,064.06,548.0
Revenue Growth %(1.7)5.3(2.8)7.910.3
Net Income608.0745.0635.0906.0848.0
Net Income Growth %(18.4)17.3(29.9)6.814.7
Net Margin %8.610.39.212.813.0
ROE % (Annualized)16.421.018.828.428.3
ROA % (Annualized)9.411.910.516.116.5

Valuation Drivers

Halliburton Co. trades at a lower Price/Book multiple (2.1) than its peer median (6.4). We classify Halliburton Co. as Harvesting because of the market's low expectations of growth (PE of 11.1 compared to peer median of 19.2), despite its relatively high returns (ROE of 21.0% compared to the peer median ROE of 13.0%).

The company's median net profit margins of 10.2% and relative asset efficiency (asset turns of 1.2x compared to peer median of 0.8x) give it some operating leverage. Halliburton Co.'s net margin is less than (but within one standard deviation of) its five-year average net margin of 11.4%.

Economic Moat

The company enjoys both better than peer median annual revenue growth of 38.1%, and better than peer median earnings growth performance 67.4%. Halliburton Co. currently converts every 1% of change in annual revenue into 1.8% of change in annual reported earnings. We view this company as a leader among its peers.

Halliburton Co.'s return on assets is above its peer median, both in the current period (12.2% vs. peer median 6.0%), and also over the past five years (12.6% vs. peer median 8.5%). This performance suggests that the company's relatively high operating returns are sustainable.

The company's gross margin of 25.3% is around peer median, suggesting that Halliburton Co.'s operations do not benefit from any differentiating pricing advantage. However, Halliburton Co.'s pre-tax margin is more than the peer median (15.1% compared to 11.1%), suggesting relatively tight control on operating costs.

Growth And Investment Strategy

While Halliburton Co.'s revenue growth has been above the peer median (10.7% vs. 6.0% respectively for the past three years), the stock's PE ratio of 11.1 is less than the peer median. This implies that the company's earnings are peaking, and the market expects a decline in its growth expectations.

Halliburton Co.'s annualized rate of change in capital of 20.3% over the past three years is around the same as its peer median of 18.5%. This investment has generated a better than peer median return on capital of 13.8% averaged over the same three years. The greater than peer median rate of return suggests that the company may be under-investing in growth.

Earnings Quality

Halliburton Co.'s net income margin for the last 12 months is around the peer median (10.2% vs. peer median of 8.7%). This average margin and relatively conservative accrual policy (1.2% vs. peer median of 0.8%) suggests possible understatement of its reported net income.

Halliburton Co.'s accruals over the last 12 months are around zero. However, this modestly positive level is also greater than the peer median, which suggests some amount of building of reserves.

Trend Charts

Company Profile

Halliburton Co. provides oil and gas exploration and its related services. The company adds value through the entire lifecycle of oil and gas reservoirs and integrates products and services, starting with exploration and development, moving through production, operations, maintenance, and conversion and refining, to infrastructure and abandonment. It is a leading provider of services and products to the energy industry related to the exploration, development, and production of oil and natural gas. The company operates its business through two segments: Completion & Production, and Drilling & Evaluation. The company was founded by Erle P. Halliburton in 1919 and is headquartered in Houston, TX.

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Source: Earnings Analysis: Halliburton Co.