With a daily gain of 2.54% and a substantial 3-month gain of 35.5%, Halliburton Co (HAL, Financial) remains a noteworthy contender in the stock market. The company's Earnings Per Share (EPS) stands at a solid 2.72. But the question remains, is the stock fairly valued? In this analysis, we delve into the intrinsic value of Halliburton Co (HAL) and its financial performance to answer this question. Let's dive in.
Introduction to Halliburton Co
Halliburton Co, one of the three largest oilfield service firms globally, offers superior expertise across various business lines, including completion fluids, wireline services, cementing, and many more. As the leading pressure pumper in North America, Halliburton Co has been a significant innovator in hydraulic fracturing over the past two decades. Comparing the stock price of $39.6 per share with the GF Value of $37.81, we get a glimpse of the company's valuation status. With a market cap of $35.60 billion, Halliburton Co's stock is believed to be fairly valued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is derived from historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should ideally trade at. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. On the contrary, if it is significantly below the GF Value Line, its future return will likely be higher.
Given that Halliburton Co's stock is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Link: These companies may deliever higher future returns at reduced risk.
Evaluating Halliburton Co's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy shares. With a cash-to-debt ratio of 0.23, Halliburton Co ranks worse than 66.63% of 1022 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Halliburton Co's financial strength as 6 out of 10, indicating a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Halliburton Co has been profitable 5 over the past 10 years. With an operating margin of 17.06%, Halliburton Co ranks better than 63.81% of 967 companies in the Oil & Gas industry. GuruFocus ranks the profitability of Halliburton Co at 6 out of 10, indicating fair profitability.
One of the most crucial factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Halliburton Co is -4.4%, which ranks worse than 76.64% of 852 companies in the Oil & Gas industry. However, the 3-year average EBITDA growth is 45.5%, ranking better than 80.97% of 825 companies in the Oil & Gas industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) with the weighted cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, Halliburton Co's ROIC is 17.25, and its cost of capital is 10.62.
Conclusion
Overall, Halliburton Co (HAL, Financial) stock is believed to be fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 80.97% of 825 companies in the Oil & Gas industry. To learn more about Halliburton Co stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
