Halliburton Company (NYSE:HAL)

Oil has been punished. Maybe a bounce is coming.

Halliburton Company (NYSE: HAL)
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Thesis: Spot prices of crude oil have resumed a level that encourages well drilling and completion, especially in the US shale oil regions, where Halliburton has a strong presence. For now and over the next year or two, it appears that there will be a relative balance between production and demand of crude oil, which will support oil's current spot price, or perhaps even drive it higher.
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Halliburton is one of the world’s largest diversified energy services providers with 55,000 employees operating in 70 countries. The company is divided into two divisions; a Completion and Production division that offers well cementing, well stimulation, intervention, and other completion services, and a Drilling and Evaluation division that provides services to model, measure, and optimize well construction activities.
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Due to an agreement between the members of OPEC and some other oil-producing countries to reduce crude oil production in order to stabilize global supply vs. demand, spot prices of crude oil has bounced back from the fifteen-year low it hit in early 2016 and is now back to its 2010 price level. Halliburton CEO Jeff Miller comments, "Supply and demand look like it's back in balance. What you see is a little bit of reaction to, at least today, of unrest globally, but the fundamentals are what seem to be in place. And that's encouraging and gives me a lot of comfort that we trade in this sort of $60 range, $60 to $70."
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While activity in the offshore deepwater rigs has been lackluster, strong onshore drilling demand in the US in the shale oil fields surged company revenue by 30% to $20 billion in 2017. As of Mar 31, 2018, 47% of Halliburton's revenue was from customers in the US, up from 42% the previous quarter. Other than the US, no other country or single customer accounted for more than 10% of revenue. Outside the US, the Middle East is their most active international market, with the largest part of the work focused on maximizing production in mature fields with the use of technology and expanded reservoir knowledge. A half dozen other countries are experiencing significant internal difficulties that result in falling crude oil production.
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Halliburton has completed writing-off all of the outstanding receivables they had in the collapsing country of Venezuela and is only operating there today on a cash-only basis. The company is expected to see margin contraction of 200-250 basis points in the second and third quarter of 2018 due to excess equipment capacity for pressure pumpers and escalating prices of a key raw material used in drilling and hydraulic fracturing, guar gum. Further on out, they are expected to be able to pass along these types of increases in cost of goods sold (COGS) to their customers.
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The Jan 2017 US production level of 8.9 million barrels per day (bbl/d) has increased to 10.8 million bbl/d in Jun 2018. The United States Energy Information Administration (EIA) forecasts that US crude oil production will average 11.9 million bbl/d in 2019, with West Texas Intermediate (WTI) crude oil prices that are expected to average $64/bbl during the second half of 2018 and first half of 2019. Estimates for both US production levels and oil spot prices have been increasing throughout 2018, due to difficult conditions seen in some oil-producing countries and now renewed sanctions forthcoming on Iran.
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At their recent shareholder meeting, the proposed executive compensation plan was significantly voted down, though that is only an advisory vote. In 2017, the total compensation for the top seven executives was $112,285,693. Institutional Shareholder Services (ISS) gives them a very poor Governance Quality Score on Executive Compensation.
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Valuation: Halliburton is a cyclical stock whose fortunes are tied to the price of oil and gas. The price of oil and gas is tied to the balance between supply and demand. Last stock price peak was 6 months before their quarterly earnings peaked at $1.19 per share.
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Tangible assets are $21.2 billion, while liabilities are $16.7 billion.
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82.6% of their stock is owned by 1356 institutions. Institutions have been accumulating since 2016. Insiders sell.
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Dividend is $0.18 per quarter and has been held at that level since Dec 2014.
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Common stock shares outstanding:
Jan 31, 2017, 866,933,212
Apr 20, 2018, 875,976,391
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Price: $52.52 | Annual Dividend: $0.72 | Dividend Yield: 1.37%