ZEUS IQ Automation And Global Contracts Will Create New Value

Key Takeaways

• Investment in advanced technologies and automation could enhance productivity, boost margins, and drive long-term revenue growth.
  
• Strategic positioning in international markets and focus on growth engines may sustain revenue growth and improve margins globally.
  
• Economic uncertainty and cost pressures pose risks to Halliburton's revenue and profitability, with notable challenges in North America and Latin America.

Catalysts

Provides products and services to the energy industry worldwide.

• Halliburton's investment in advanced technologies and automation, such as ZEUS IQ for closed-loop autonomous frac operations, is expected to improve productivity and create unique customer value, potentially boosting margins and revenue growth over the long term.
  
• Significant contract wins in international markets, including deepwater projects in regions like Suriname and Brazil, highlight Halliburton's competitive positioning and are projected to drive international revenue and earnings growth.
  
• Halliburton's focus on growth engines—unconventional resources, artificial lift, intervention, and directional drilling—especially in regions like the Middle East, offers potential for above-market revenue growth and improved margins.
  
• The company’s strategic approach to maximize value in North America through technology leadership and contracted fleets could sustain competitive margins and support earnings stability during periods of market volatility.
  
• Planned capital expenditures aimed at sustaining technology leadership and expanding differentiated service offerings internationally reflect expectations of heightened demand and revenue potential in key growth markets beyond 2025.

Halliburton Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Halliburton's revenue will grow by 1.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.3% today to 11.5% in 3 years time.
• Analysts expect earnings to reach $2.7 billion (and earnings per share of $3.23) by about April 2028, up from $2.1 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $3.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.1x on those 2028 earnings, up from 8.5x today. This future PE is greater than the current PE for the US Energy Services industry at 10.6x.
• Analysts expect the number of shares outstanding to decline by 2.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.02%, as per the Simply Wall St company report.

Halliburton Future Earnings Per Share Growth

Risks

• The trade environment and economic concerns have injected uncertainty into the markets, potentially impacting commodity prices and Halliburton’s revenue.
  
• There is an expected flat to slightly down year-over-year international revenue outlook, highlighting the risk of stagnant or declining revenue and earnings outside of North America.
  
• The North American revenue decreased by 12% year-over-year, suggesting potential challenges in maintaining revenue and operating margins in that region.
  
• The company experienced a significant decrease in revenue from Mexico, which contributed to lower international and overall company revenues, posing a risk to future earnings from Latin American markets.
  
• Increased cost pressures such as severance costs, impairment charges, and potential tariff impacts could affect operating margins and overall profitability.

Valuation

• The analysts have a consensus price target of $31.748 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 $38.0, and the most bearish reporting a price target of just $23.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $23.3 billion, earnings will come to $2.7 billion, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $20.7, the analyst price target of $31.75 is 34.8% 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.