With a daily loss of -2.84%, a 3-month gain of 27.69%, and Earnings Per Share (EPS) of 2.72, Halliburton Co (HAL, Financial) is currently a hot topic among investors. The question at the forefront is whether the stock is modestly overvalued. This analysis aims to provide a comprehensive answer, so read on for an in-depth valuation analysis of Halliburton Co.
Company Introduction
Halliburton Co, one of the world's three largest oilfield service firms, offers expertise in various business lines, including completion fluids, wireline services, and cementing. It's the leading pressure pumper in North America and has been a significant innovator in hydraulic fracturing over the past two decades. With its current price of $41.43 per share, Halliburton Co, with a market cap of $36.60 billion, appears to be modestly overvalued when compared to its GF Value of $37.98.
Understanding the GF Value
The GF Value is a unique measure that represents the current intrinsic value of a stock. It is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to our calculations, Halliburton Co appears to be modestly overvalued. This assessment is based on the historical multiples at which the stock has traded, the company's past business growth, and future business performance estimates. If a stock's price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given that Halliburton Co is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength and Profitability
Investing in companies with strong financial strength reduces the risk of permanent loss. Halliburton Co's cash-to-debt ratio of 0.23 is lower than 66.41% of 1030 companies in the Oil & Gas industry, indicating a fair financial strength rating of 6 out of 10.
Investing in profitable companies carries less risk. Halliburton Co has been profitable for 5 years over the past 10 years. With revenues of $22.40 billion and Earnings Per Share (EPS) of $2.72 in the past 12 months, the company's operating margin of 17.06% is better than 63.78% of 980 companies in the Oil & Gas industry. Therefore, Halliburton Co's profitability is considered fair.
Growth and ROIC vs WACC
Long-term stock performance is closely correlated with growth. Halliburton Co's average annual revenue growth is -4.4%, which is lower than 76.83% of 859 companies in the Oil & Gas industry. However, its 3-year average EBITDA growth of 45.5% is better than 81.02% of 827 companies in the Oil & Gas industry.
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Halliburton Co's ROIC was 17.25, while its WACC came in at 10.93.
Conclusion
In conclusion, Halliburton Co (HAL, Financial) stock appears to be modestly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 81.02% of 827 companies in the Oil & Gas industry. For more details about Halliburton Co stock, you can check out its 30-Year Financials here.
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