Halliburton Company (HAL) in Houston, Tex., is one of the world's largest providers of products and services to the energy industry. Soaring oil prices, higher cementing activity in the Middle East/Asia region, increased well intervention services in the Europe/Africa/CIS region, and improved drilling-related services have helped the company prosper. 

The stock has gained 13.5% in price over the past month to close yesterday’s trading session at $25.12. However, it is currently trading 6.1% below its 52-week high of $26.75, which it hit on October 25, 2021. According to Refinitiv IBES, even though HAL’s third-quarter profit was in line with analysts' estimates, its $3.86 billion in revenue was slightly below  consensus expectations of $3.91 billion. 

Also, the U.S. Well Services, Inc. (USWS) filed a patent infringement lawsuit against HAL in April 2021, alleging that it infringed its electric fracking patents. Furthermore, Murry Gerber, a HAL board member, sold 44,590 shares last month. So, the stock’s near-term prospects look uncertain.

Here’s what could shape HAL’s performance in the near term:

Increased Contracts

In mid-September HAL announced that it had been awarded an integrated services contract to execute a three- to five-well drilling and completions campaign for Energean. Also, Sapura Drilling awarded the company an offshore integrated contract on August 10. The company also won a seven-year contract in July 2021 to provide Production Chemicals and Associated Services for a large IOC in Oman.

Impressive Financials

HAL’s Completion and Production segment revenue came in at $2.14 billion for its third fiscal quarter, ended September 30, 2021, up 35.7% year-over-year, while its Drilling and Evaluation segment revenue increased 23.1% year-over-year to $1.72 billion. The company’s adjusted net income came in at $248 million, representing a 148% year-over-year rise. Its adjusted EPS increased 154.5% year-over-year to $0.28. Also, its FCF came in at $469 million.

Stretched Valuation

In terms of forward non-GAAP P/E, HAL’s 24.66x is 99.4% higher than the12.37x industry average. Likewise, the stock’s 11.61x forward EV/EBITDA is 41% higher than the 8.24x industry average. Its 17.48x and 3.96x respective forward EV/EBIT and P/B are higher than the 13.48x and 1.82x industry averages.

POWR Ratings Reflect Uncertainty

HAL has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. HAL has a B grade for Growth, which is consistent with analysts’ expectations that its revenue and EPS will grow 4.5% and 63.1%, respectively, year-over-year in its fiscal year 2021 to $15.10 billion and $1.06.

However, the stock has a C grade for Value, which is in sync with its higher-than-industry valuation ratios. Also, HAL has a D grade for Stability, consistent with its 2.74 beta.

HAL is ranked #9 of 42 stocks in the Energy – Services industry. In addition to the POWR Rating grades I’ve just highlighted, we’ve also rated the stock for Momentum, Sentiment, and Quality. Get all the HAL ratings here.

Bottom Line

Rising demand for oil and related services, such as drilling, has helped HAL grow its business. In May 2021, the company collaborated with TGS-NOPEC Geophysical ASA to introduce advanced seismic imaging. However, the stock looks significantly overvalued now, and seems to have reached its peak. So, we think it could be wise to wait before scooping up its shares.

How Does Halliburton (HAL) Stack Up Against its Peers?

While HAL has an overall POWR Rating of C, one could check out these other B-rated (Buy) stocks within the same industry: Oceaneering International, Inc. (OII), North American Construction Group Ltd. (NOA), and Archrock, Inc. (AROC).

HAL shares fell $0.12 (-0.48%) in premarket trading Thursday. Year-to-date, HAL has gained 33.74%, versus a 22.60% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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