Based in Houston and founded in 1919, Halliburton (NYSE:HAL) is among the world’s biggest oil-field service providers. Diminished energy demand battered Halliburton stock in March. However, a gradual recovery seems to be in progress.
There’s no point in trying to pretend that Halliburton stock will quickly or easily recover their losses. The share price is still far below the 2020 peak of more than $25. And the news reports pertaining to Halliburton haven’t been encouraging lately.
Therefore, if you’re looking for quick or assured returns, Halliburton stock isn’t a strong buy. On the other hand, if you’re prepared to take a chance on a beaten-down oil-sector giant, a long-term buy-and-hold position might be worthwhile.
Putting a Positive Spin on the Data
Corporate chief executives are, in a sense, politicians and promoters. Part of a CEO’s job description is to paint an optimistic picture during earnings-report conference calls. They do this regardless of whether the released data is good or bad. We can use Halliburton’s first-quarter earnings report and conference call as a textbook example of this.
On a quarterly basis, Halliburton posted a net loss of $1 billion, which equates to $1.16 per diluted share. This compares highly unfavorably to the same quarter of the prior year. At that time, there wasn’t a net loss. Rather, there was a net gain of $152 million, which amounts to 17 cents per diluted share.
Nonetheless, Halliburton chairman, president and CEO Jeff Miller managed to pinpoint some good news and put a positive spin on the earnings data:
“Halliburton executed well in the first quarter. Total company revenue for the first quarter was $5.0 billion, a 12% decrease year over year, and adjusted operating income of $502 million increased 18% year on year. Both our divisions delivered strong margin performance in the first quarter. Our first quarter results demonstrate that the Halliburton team is well prepared to adjust and deliver under any market conditions.”
A 12% year-over-year decrease in revenues might not convince you that the company “executed well in the first quarter.” Given the oil-price rout, however, it’s reasonable to conclude that Halliburton held up fairly well.
With the oil supply glut and the energy demand collapse in effect, it’s impressive that Halliburton managed to quarterly adjusted operating income of half a billion dollars. And as the company’s CEO points out, the company has been through downturns before.
Cost-cutting Is the Key
Besides, it’s not as if the company’s just sitting on its hands. Miller provided confidence to Halliburton stockholders that the company’s in full retrenchment mode:
“We know what to do and will execute based on that experience. We are taking swift actions to reduce overhead and other costs by approximately $1 billion, lower capital expenditures to $800 million, and improve working capital.”
Cutting costs is a smart move during this challenging time for the economy. A leaner Halliburton should have no problem surviving the current supply and demand issues, even if their resolution takes a while.
It’s understandable if prospective Halliburton stock buyers might feel skittish at the moment. Perhaps they’re bothered by the announcement that Halliburton’s halting its primary operations in Venezuela. This action is due to sanctions on Venezuela imposed by the U.S. Treasury Department.
Evidently the purpose of the sanction is to put pressure on Venezuelan President Nicolas Maduro. This problem isn’t specific to Halliburton, as other U.S. energy companies will also need to cease operations in Venezuela if they haven’t already done so.
As the old saying goes, “This, too, shall pass.” Political issues tend to be resolved sooner or later, albeit not without damage done. In any case, Halliburton’s business isn’t entirely reliant on Venezuela. It’s a massive company with global operations and as the company’s CEO suggested, Halliburton should be able to survive and deliver results “under any market conditions.”
The Takeaway on Halliburton Stock
In all likelihood, Halliburton’s cost-cutting plan won’t reap benefits quickly. Investors in Halliburton stock should expect the road to recovery to be slow but steady. Just be patient and remember that today’s problems, given enough time, will pass.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.