Halliburton see hard times ahead

The company will report its first-quarter figures on Monday 20 April, and the acquisition of Baker Hughes will cushion the blow of depressed oil prices.

An oil rig
Source: Bloomberg

The year 2014 was a dreadful year for the oil market, but that didn’t’ stop Halliburton registering a 15% jump in revenue and a 14% rise in net income for the final quarter of the year. Net income would have been 12% higher if it were not for restructuring costs and acquisition costs.

The oilfields services company used the downturn in the oil market to expand its empire with the acquisition of Baker Hughes for $35 billion at the back end of last year.

The impact of the collapse in the price of oil has yet to fully hit the industry, and it is likely the smaller companies in the sector will feel the pinch more than Halliburton. Big oil companies have been aggressively cutting their capital expenditure budget for 2015 and 2016, and it will be the back end of this year before we see the true impact of depressed oil prices on the company.

Belt tightening will be the name of the game for Halliburton, and the company has already cut its workforce by 1000 outside of the US last year, and more job cuts are in the pipeline, and this time it will be closer to home.

Provided there are no issues with anti-competition authorities, the deal between Halliburton and Baker Hughes will be finalised in the second-half of 2015. The new combined company will have to become a lot leaner if it wants to take on Schlumberger, which is the biggest in the industry.

When Halliburton reveals its first-quarter numbers, the market is expecting revenue of $7.02 billion and earnings per share (EPS) of 39 cents. The fourth-quarter numbers were well received by investors, and revenue was $8.77 billion and EPS came in at $1.19, while the consensus was for $8.79 billion and $1.10 respectively. The company will report its full-year figures in January 2016, and the market is expecting revenue of $25.42 billion and EPS of $1.27. These forecasts represent a 22% decline in revenue and a 68% drop in EPS.

Equity analysts are very bullish on Halliburton, and out of the 36 ratings, 27 are buys, eight are holds, and only one is a sell. The average target price is $48.45, which is 4.8% above the market price. Investment banks are also very bullish on Schlumberger, and out of the 43 recommendations, 29 are buys, 13 are holds, and one is a sell. The average target price is $93.59 which is 5.4% above the current price.

The number of short positions on Halliburton has increased by 5% since the company reported its fourth-quarter numbers in January. The short interest on the stock is now at its highest level in 12 months.

The stock has been trading higher throughout 2015, and since the gap that was created in November has been filled, the target is $50. If that mark is cleared, the 200-day moving average at $52.47 will be the next target. A move through the 200-DMA will bring the $56 region into sight. Any pull backs in the stock will find support in $46 region, and a drop through that mark will bring $44 into sight.

Halliburton is available for extended hours trading.

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