Innovative Tech And Strategic Acquisitions Set To Fuel Exceptional Global Growth

Key Takeaways

• Halliburton's global expansion and innovation in products like Landmark software and iCruise systems are projected to significantly improve revenue and net margins.
  
• Strategic mergers and a focus on operational efficiency, even in weaker North American markets, aim to bolster earnings through cost management and technology investment.
  
• Halliburton faces challenges including decreased North American activity, international growth risks, cost pressures, reliance on new technologies, and increasing competition.

Catalysts

Provides products and services to the energy industry worldwide.

• Strong international demand and a solid growth trajectory in various regions, including Latin America, are expected to bolster Halliburton's international business, contributing to approximately 10% revenue growth for the full year, positively impacting overall revenue.
  
• Technological innovations in areas such as Landmark software, artificial lift product lines, and drilling services, particularly in the international markets, are projected to enhance product differentiation and efficiency, thereby improving net margins through advanced offerings like unified ensemble modeling, GeoESP line for geothermal environments, and iCruise X rotary steerable systems.
  
• The implementation of strategic mergers and acquisitions, notably in the artificial lift space, enabling Halliburton to incorporate leading technologies into its portfolio, could allow for organic growth and customer collaboration, leading to an increase in earnings by maximizing asset value.
  
• A focused approach on efficient service delivery in North America, despite a forecasted decline in activity, aims to demonstrate margin resilience and earnings power, potentially leading to stronger net margins through cost management and operational efficiency.
  
• Investments in technology and innovation, such as the development of Octiv automation for precision in multi-well pads and the rapid adoption of iCruise rotary steerable systems in North America, are expected to drive above-market growth and improve earnings by reducing drilling times and enhancing service delivery.

Assumptions

• Analysts are assuming Halliburton's revenue will grow by 4.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.6% today to 12.6% in 3 years time.
• Analysts expect earnings to reach $3.4 billion (and earnings per share of $3.97) by about August 2027, up from $2.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.1x on those 2027 earnings, up from 10.1x today. This future PE is lower than the current PE for the US Energy Services industry at 17.3x.
• Analysts expect the number of shares outstanding to decline by 1.75% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 8.63%, as per the Simply Wall St company report.

Risks

• Concerns about the potential for lower activity levels in North America, which could lead to a decrease in revenue and impact profitability.
  
• Risks related to international revenue growth not meeting expectations, potentially due to project delays or geopolitical issues, affecting overall revenue growth.
  
• The impact of cost pressures or supply chain issues, possibly exacerbated by inflation or global logistics challenges, could affect net margins.
  
• Dependence on technological advancement and new product acceptance, such as the iCruise system and artificial lift products, where failure to achieve market penetration or operational issues could negatively impact earnings.
  
• The possibility of increased competition or technological innovation by competitors, potentially eroding Halliburton's market share and impacting revenue and earnings.

Valuation

• The analysts have a consensus price target of $44.15 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 $50.0, and the most bearish reporting a price target of just $39.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $26.6 billion, earnings will come to $3.4 billion, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $30.74, the analyst's price target of $44.15 is 30.4% 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.