The 2 G’s of Halliburton: Global Growth
Halliburton is a well known company for many reasons. It is a huge oil and gas company that has a great presence in the energy industry. They have also been a solid stock for investors as well. Can it get much better? Possibly so! According to Agustino Fontevecchia, HAL is going to grow at an international level.
Halliburton trades at 16.6x and 13.4x its 2011/2012 EPS estimates, below its peer large-cap diversified oil and gas firms that trade at 20.3x and 14.3x. It trades in the middle its five-year historical average P/E multiple range of 10.0x to 19.0x (at 14.5x average), and below its peers’ and its own historical EBITDA averages.
Operations in North America drove the recent earnings beat, with margins up about 400 basis points on a solid performance by the completion & production unit (operating margin up to 32%, almost at their 2006 peak), and drilling & evaluation results showing a good 400 basis point margin increase as well (to 20%, well below its peak). (ReadOil Prices: Brent-WTI Spread Above $22 And Here To Stay).
“[Halliburton] indicates that margins across its product lines continue to show upside,” read the note. The analyst makes the argument that already increased margins in North America could be sustained and even improved to outpace their 2006 peak as Halliburton “[focuses] on setting prices that more effectively reflect the value they provide to customers.
A lot of the upside, though, comes from their current unaggressive pricing in the international arena. Margins fell in all regions but Latin America, the company reported, despite growing revenue for every region. The second quarter saw international margins fall about 400 basis points, which seems to be the prevalent number all around, on weakness in Libya, Iraq, Sub-Saharan Africa, the UK North Sea, and Algeria. (Read Luckily For Transocean, High Oil Prices Forgive Many Mistakes).
Market rumors said Halliburton had been undercutting its rivals in international bids with lower prices. While the company denied this, claiming pricing behavior had been consistent with its peers, Burk noted the company can underbid its main competitors in deepwater bidding given cost advantages in certain products. This has allowed Halliburton to grow its market share in the U.S. Gulf of Mexico and makes it one of the only firms in the sector that can actually raise prices.
Halliburton is set up for success. With more growth at a global level, alongside their rising margins, can they really go wrong? HAL is one of our 2011 Stocks to watch, and I think that this confirms it!
Quotes taken from report by Agustino Fontevecchia, Read the entire article here.
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