Halliburton (HAL) — the #1 U.S. oil services provider — leverages economic growth and technical innovation at an attractive valuation, suggests Adam Johnson, editor of Bullseye Brief.
Exploration companies rely on Halliburton’s technical expertise and specialized equipment to bring hydrocarbons to the surface. As an oil field services provider hired by exploration companies to manage the drilling process, Halliburton works alongside drillers but has no direct exposure to potential losses associated with energy exploration.
Instead, the company collects transparent and predictable fees for its expertise — so its earnings are much easier to forecast. Halliburton trades at its cheapest valuation in several years, less than nine times earnings with a 2.3% dividend yield.
The company has invested significant capital into developing new technologies, the latest of which is a digital transformation dubbed Halliburton 4.0. The project involves a massive effort to compile billions of data points gathered over years into a central database.
The goal is to empower field engineers to drive higher completions at lower cost in real-time, supercharging old-school drilling techniques with cutting edge AI capability.
Its perforating gun systems that deliver fracking explosives at depth are four times more effective than those used by peers. Patented latches, seals and winches reduce downtime by up to 26%.
These are the tangible results of an 10-year capex cycle that peaked at 11% of revenues and has since tapered to 5%. Lower capital intensity means higher capital efficiency, plus dividend increases and stock buybacks.
I like owning HAL in the high $20s, a baseline from which the stock has bounced several times in the past two years. This price level is also attractive for fundamental reasons. HAL currently trades at less than nine times earnings and pays a 2.3% dividend.
