HalliburtonHAL31,70 $
Today we have a moderately speculative idea.: take shares of the American oilfield service company Halliburton (NYSE: THING), in order to capitalize on their rebound after the fall.
Growth potential and validity: 16,5% behind 14 months excluding dividends; 32,5% behind 2 years excluding dividends; 10% per annum during 10 years including dividends.
Why stocks can go up: because they have recently fallen badly for no good reason and should rebound., because for the company's business the conjuncture is excellent.
How do we act: take now 31,70 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
HAL is an oilfield services company, which supplies oil companies with equipment of its own production and provides related services.
According to the company's annual report, its revenue is divided into two parts:
- Construction and mining — 55%. The segment presents solutions for the construction of wells and subsequent production. Segment operating margin — 14,72% from its proceeds.
- Drilling and analysis — 45%. Drilling, Software and Customer Asset Management. Segment operating margin — 11,63% from its proceeds.
The company's revenue is divided into services, that give 71,84% proceeds, and goods, that give 28,16%.
Company revenue by regions:
- North America - 42%.
- Latin America — 15%.
- Europe, Africa and CIS — 18%.
- Middle East and Asia — 25%.
Arguments in favor of the company
Everybody rocks. The exclusion of the Russian Federation from the world economy, coupled with the growth in demand for raw materials, makes high oil prices a constant spectacle – which means, one can cautiously hope for, that Western oil and gas companies will begin to increase investment in exploration and production – with positive consequences for HAL.
All kinds of forecasting. The energy sector is leading in analysts' forecasts in terms of the parameter of positive revisions of reporting forecasts - it is understandable., with such and such a conjuncture.
Considering, that most of the managers of investment funds are blinkered simpletons, I would expect that, that on the basis of these forecasts, they will begin to actively invest in companies "that can earn in the face of high oil prices". Therefore, HAL can hope for an influx of money from institutional investors..
Dividends. The company pays 0,48 $ per share per year, what gives 1,51% per annum. HAL spends about a quarter of its profits on dividends., so, taking into account the positive situation, it may well increase payments twice as much.
Fell down. Back in the first half of July, HAL shares were worth 42,97 $, but after the recent stock market crash fell to 31,70 $. This fall is meaningless in the light of positive trends for the company., so i think, that we can count on a rebound in shares.
Inexpensive. P / S at the company 1,87, a P / E — 19,34. It's not too small., but given the above points, not much. The company's market capitalization is also relatively small - about $ 28.54 billion.. Think, it can attract to it as investors, and potential buyers.
What can get in the way
Improve my accounting. American oil and gas companies are in no hurry to increase investments in exploration and production, so HAL's financial growth may be more subdued, than we would ideally like.
Not a time to rejoice. If the full-scale quarantine is repeated, as in the spring of 2020, then the company will face heavy losses.
Three years are waiting for the promised. The total amount of debts of the company is large: just over $15 billion, of which 4.444 billion need to be repaid within a year. The money at the disposal of the company - 2.154 billion in accounts and 4.026 billion debts of counterparties - is more than enough to close urgent debts and dividends. But such an impressive mountain of debts, which will become harder to serve after rising rates, will prevent the company from increasing payments.
What's the bottom line?
Shares can be taken now by 31,70 $. And then there are the following options:
- wait for growth until 37 $. Here you should focus on 14 months of waiting;
- hold until the stock returns to 42 $. It is better to count on 2 of the year;
- hold shares 10 years. It seems to me, the company can be bought during this time: it is a good and strong business.
