Can Halliburton Drill Its Way To Higher Prices?

With shares of Halliburton (NYSE:HAL) trading around $43, is HAL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Halliburton provides a range of services and products for the exploration, development, and production of oil and natural gas. The company operates in two segments, Completion and Production, and Drilling and Evaluation. The Completion and Production segment offers production enhancement services, including stimulation services and sand control services as well as cementing services comprising bonding the well and well casing, and casing equipment. The Drilling and Evaluation segment offers drill bits and services; as well as coring equipment and services; wireline and perforating services; and testing services comprising acquisition and analysis of reservoir information and optimization solutions. As consumers and business demand for energy continues to rise, companies like Halliburton are well positioned to provide products and services well into the future.

T = Technicals on the Stock Chart are Strong

Halliburton stock has been coasting higher over the last year and looks poised to continue this trend. However, the stock is now consolidating, so it may need some time before it gets going once again. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Halliburton is trading slightly above its rising key averages, which signal neutral to bullish price action in the near-term.

HAL

(Source: Thinkorswim)

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Taking a look at the implied volatility (red) and implied volatility skew levels of Halliburton options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Halliburton Options

30.22%

76%

74%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Halliburton’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Halliburton look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

24.72%

-26.87%

-12.16%

-1.25%

Revenue Growth (Y-O-Y)

1.54%

3.20%

8.60%

21.89%

Earnings Reaction

5.58%

5.05%

3.15%

2.4%

Halliburton has seen mostly decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been upbeat about Halliburton’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Halliburton stock done relative to its peers, Schlumberger (NYSE:SLB), Apache (NYSE:APA), Baker Hughes (NYSE:BHI), and sector?

Halliburton

Schlumberger

Apache

Baker Hughes

Sector

Year-to-Date Return

24.19%

4.59%

8.41%

14.95%

10.31%

Halliburton has been a relative performance leader, year-to-date.

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Conclusion

Halliburton is a provider of many services that relate to the oil and natural gas industries operating all around the world. The stock has been trending higher over the last year but is now consolidating, so it may need some time before it makes its next move. Over the last four quarters, earnings have decreased while revenues have increased, which has kept investors upbeat about the company. Relative to its peers and sector, Halliburton has been a year-to-date performance leader. Look for Halliburton to OUTPERFORM.

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