Halliburton Company (NYSE:HAL) Fundamental and Technical Observations

Prior to the next Earnings Release, this article aims to provide fundamental insights referencing the most recent earnings release coupled with a Technical Analysis.

Halliburton Company (NYSE:HAL) first quarter results for 2014 exhibited modest growth for the company. Halliburton posted an approximate 5.4% increase in revenue, relative to the first quarter of 2013, “mainly due to increased activity in the Eastern Hemisphere and higher production enhancement activity in the United States land market, partially offset by lower activity levels in Latin America” (p. 18). Net income of $622 Million is up significantly from last year’s first quarter loss of $18 Million.

This huge increase is primarily attributable to the company’s 1,090% increase in operating revenue during that time period. We see that this increase is a result of a $1 Billion loss contingency related to the Macondo Well incident – popularly known as the BP oil spill – which was recorded in the first quarter of 2013. Looking past this loss contingency, operating income would have been $902 million for Q1 2013. This would have implied operating income growth of about 7.5% for the past year, which shows that Halliburton has achieved growth in operating income beyond whatresulted from the recording of its $1 Billion loss contingency.

Lower oil and natural gas prices typically lead to lower cash flows for Halliburton, as a result of decreased exploration and production budgets from its customers. Compared to the first quarter of last year, WTI crude oil’s price is up $5 per barrel, to $99 per barrel, while Brent crude is down $4, to $108 per barrel. This implies mixed prospects as WTI’s price increase is nearly offset by Brent’s price decrease. In contrast, the price of Henry Hub natural gas has experienced a significant increase of 49%, taking its price to $5.20 per MMBtu. This increase was driven by a harsh winter, and as such, the price of natural gas is expected to fall to $4.40 MMBtu as the weather normalizes in the coming months. On net, we should expect a similar level of revenue to be generated through services related to oil and a significant increase in services related to natural gas, assuming Halliburton’s assumption about consumer behavior and natural gas prices holds true.

Halliburton lists some major pending cash flows such as delays in receivables from its primarycustomer in Venezuela and a dispute over a tax sharing agreement with engineering company KBR. Halliburton states that its Venezuela-based customer has not been an issue in the past, with respect to defaulting on its payments, but has yet to settle the $577 Million owed to Halliburton. Additionally, in October of 2013, Halliburton wasawarded $105 Million plus interestby an arbitrator in a dispute with KBR. This decision is being contested by KBR; however, the arbitrator issued a report that reaffirming the original decision. In each case, it seems somewhat likely that Halliburton will receive the payment, but the timing of such payments remains uncertain. 

Halliburton's overall, long term strategy is to grow its operations outside of North America, as evidenced by approximately 47% of consolidated revenue coming from outside of this region during the first quarters of 2013 and 2014. This coincides well with the outlook for energy demand, which is expected to increase in the long run due to economic growth in developing countries. Halliburton will be investing capital in equipment for international operations, with an overall expected capital spending of $3 Billion for 2014, an amount equal to that of its 2013 estimated capital spending. It is reasonable to expect operating costs to rise as Halliburton further pursues its international expansion; however, once that expansion is complete, Halliburton should be poised to generate greater profits.  We will see how this plays out when the next EPS release comes later this month.

Technical Analysis for Halliburton (HAL) by Thomas H. Kee Jr.

According to our real time trading report for HAL, the stock is close to longer term resistance, but it has not tested longer term resistance yet.  Our report does not offer sell signals, because resistance was not tested yet, but resistance is within striking distance and sell signals could come at any time.  By rule we should also expect these channels to hold, so if resistance holds after it is tested HAL may also be a decent short from resistance back to support as that is offered in our report, but there will be no short signals until resistance is tested.