By Micheal Kaufman
Halliburton Company (NYSE:HAL) - an oilfield-services and equipment company with headquarters in Dubai and Houston - is set to announce earnings for the second quarter of its 2014 fiscal year (2QFY14; ended June 30) before markets open on Monday. Halliburton has outperformed the Market Vectors Oil Services ETF (NYSEARCA:OIH) year-to-date; the former rose 39.6% while the ETF's value increased 19.6%.
Barclays Plc (ADR) (NYSE:BCS) forecasts that spending by firms on exploration & production (E&P) activity this year will touch $723 billion, reflecting a 6.1% increase from $628 billion in 2013. Since E&P is a major revenue-driver for oil companies, Halliburton, along with others, looks to benefit from the increased investment. Halliburton has also increased its drilling activity, continuing its momentum in the Eastern hemisphere.
Halliburton is currently in a transition phase, as it looks to turn toward cleaner sources of energy for its drilling activity. The company has initiated a program called "Frac of the Future," whereby it has decided to power its drilling equipment through natural gas instead of diesel. Halliburton expects to run almost 50% of its drilling equipment on gas by the end of next year. This shift is bound to end up lowering operational costs, thereby boosting earnings going forward. According to reports, the company has converted almost 10% of its drilling equipment to natural gas.
Bidness Etc believes the company will post robust revenue and earnings figures. Its closest competitors - Schlumberger Limited (NYSE:SLB) and Baker Hughes Incorporated (BHI) - also posted healthy earnings last week.
Wall Street Expectations
Analysts expect Halliburton to post revenues of $7.9 billion year-over-year (YoY) - a 12.9% increase from $7 billion in 2QFY13. The quarter's revenues are expected to fall between $7.7 billion and $8 billion. The company has only missed analysts' revenue estimates once in the last six quarters. Halliburton announced revenues of $7.35 billion in 1QFY14 and analysts anticipate an increase of 7.5% from the last quarter.
The net income for the quarter is forecasted to come in at $777.7 million - a 14.9% increase from $677 million in 2QFY13. Earnings per share (EPS) are estimated to be 91 cents, compared to 73 cents in 2QFY13. Having beaten earnings expectations for the last 23 quarters, Halliburton's EPS is expected to fall between 87 and 94 cents.
Historical Price Movements
For the last 10 quarters, Halliburton's one-day price has increased 1.42% on average, following its earnings announcement. Moreover, a three-day price-average for the last 10 quarters shows that the stock has increased approximately 2.3% within three days of the earnings announcement.
Sell-Side Expectations & Valuation
Out of 34 analysts covering the stock, 26 have given it a 'Buy' rating while six have recommended a 'Hold'. The stock has been assigned a 12-month average price of $76.75, indicating an upside potential of 9.1% over its last closing price of $70.35.
Currently, Halliburton is trading at 15.2 times its estimated earnings for 2014, a 1% discount to the industry's average. However, on a 3-year forward earnings estimate, the stock is trading at an even higher discount of 13.4% to the industry.
Bidness Etc believes that Halliburton will exceed estimates owing to two major reasons: 1) the company's strong performance from the last quarter has continued into the second quarter 2) An overall increase in E&P activity, which has benefitted oil services companies.
Disclosure: No positions.