Adoption Of Technologies Like Octiv Auto Frac Will Boost Competitive Edge

Key Takeaways

• Strategic investments in electrification, automation, and digital solutions enhance Halliburton's competitive advantage and future earnings potential.
  
• Strong international revenue growth expected through drilling technologies and customer relationships, boosting margins and supporting future financial performance.
  
• Halliburton faces potential revenue and margin pressures due to declining North American revenues, pricing pressures, and increased competition in technology adoption.

Catalysts

Provides products and services to the energy industry worldwide.

• Halliburton expects significant international revenue growth driven by their technology portfolio in drilling technologies, unconventionals, well intervention, and artificial lift, potentially adding $2.5 billion to $3 billion of revenue in the next 3 to 5 years, positively impacting revenue growth.
  
• The company is leveraging its extensive customer alliances and collaborative value proposition, which could lead to stronger customer relationships and higher-margin contracts in the future, supporting net margins.
  
• Halliburton's strategic investments in electrification, automation, and digital solutions are anticipated to enhance their competitive advantage and return on investment, indicating potential improvements in future earnings.
  
• With the expected catalyzing inflection of increased natural gas demand in North America, Halliburton's sold-out fracturing capacity and widespread adoption of their technologies like Octiv Auto Frac position them for potential revenue growth in this market.
  
• Continued disciplined capital allocation and a commitment to return at least $1.6 billion to shareholders in 2025 underscore Halliburton's potential for maintaining strong free cash flow and shareholder returns, positively impacting investor perception and stock valuation.

Halliburton Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Halliburton's revenue will grow by 2.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.9% today to 11.9% in 3 years time.
• Analysts expect earnings to reach $2.9 billion (and earnings per share of $3.5) by about January 2028, up from $2.5 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $3.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.6x on those 2028 earnings, up from 9.4x today. This future PE is lower than the current PE for the US Energy Services industry at 14.6x.
• Analysts expect the number of shares outstanding to decline by 2.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.7%, as per the Simply Wall St company report.

Halliburton Future Earnings Per Share Growth

Risks

• The expected flat international revenues for Halliburton in 2025, driven by reduced activity in Mexico, could impact the company’s overall revenue growth, particularly if the Mexican market does not recover as anticipated.
  
• Declining North America revenues, which are anticipated to decrease by low to mid-single digits in 2025, may put pressure on Halliburton's revenue and earnings, especially if the pricing pressures from renegotiated contracts are not adequately offset by increased activity or efficiency gains.
  
• Concerns about pricing pressure and the impact of lower negotiated prices in North America could lead to reduced margins in the Completion and Production division, as indicated by expectations of margin declines in early 2025.
  
• Increasing competition and evolving customer demands for technologies such as dual fuel and electric frac fleets may necessitate continual investment in technology, potentially impacting the company's cost structure and operational margins.
  
• International tax changes and shifts in geographic earnings mix resulting in a higher effective tax rate could affect Halliburton's net earnings, as a 300 basis point increase in the effective tax rate is expected for 2025.

Valuation

• The analysts have a consensus price target of $34.41 for Halliburton based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $41.0, and the most bearish reporting a price target of just $28.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $24.3 billion, earnings will come to $2.9 billion, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of $26.65, the analyst's price target of $34.41 is 22.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.