Halliburton (NYSE:HAL) has been a major player in the oil and energy industry for decades. And like many other companies, Halliburton stock is continuing to suffer the effects of the economic downturn brought on by the novel coronavirus.
In April, the company announced that it lost $1 billion during the first quarter of 2020. And its outlook for the rest of the year wasn’t much better.
The stock is down 52% year to date and is considered a hold on Wall Street, according to analyst ratings. On May 20, the company made the news by cutting its dividend nearly 75%.
Halliburton isn’t the only energy company to slash its dividend, but investors couldn’t have been thrilled by the news. After all, if Halliburton stock isn’t paying out a generous dividend then what is the point of buying in the first place?
The company has also dramatically cut its capital expenses and furloughed thousands of workers. Company management said this is due to “the current market conditions and uncertainties regarding the depth and duration of this downturn.”
All of this has left many people wondering what is next for Halliburton, and if the stock is worth buying on the drop.
Ongoing Headwinds Facing Halliburton
The truth is, the problems facing Halliburton didn’t start with the coronavirus, though it certainly exacerbated them. Once the coronavirus hit, the global demand for oil suddenly shrank, even as supply was rising. This caused oil prices to fall to new lows and an oil price war to start between Saudi Arabia and Russia.
Fortunately, both the supply and the demand for oil have improved in May, so prices have started rising once again. However, many traders are still uncertain about the short-term outlook on oil.
This really depends on how quickly the U.S. is about to return to the same levels of economic activity that it was at before the coronavirus pandemic hit. If a second wave of the coronavirus does hit and we go through another economic slowdown, oil companies will be facing the same problem once again.
Companies like Halliburton are now dealing with heavy debt and decreased cash flow. This caused the company to slash its quarterly dividend from 18 cents to 4.5 cents and cut its 2020 capital expenditures by as much as 50%.
Unfortunately, cutting costs won’t fix the lack of demand for oil. But it will allow the company to free up as much cash flow as possible while it navigates the ongoing economic uncertainty.
Bottom Line on Halliburton Stock
Over the past three months, Halliburton stock has been all over the place. Nine different analysts have downgraded the stock and one UBS analyst recommends selling the stock.
For instance, the stock slid more than 4% last week after the company was downgraded by a Cowen analyst. Analyst Marc Bianchi agreed that the stock is valued fairly, but said that there seems to be more downsides than upsides. “With the run in the stock and our macro assumptions around North America, we just do not see enough upside to justify an Outperform rating,” he wrote.
It is a good sign that oil prices have recovered somewhat over the past month. And the Trump administration is working with OPEC to cut back on production.
But given how volatile the stock market is right now and the precarious position most gas and energy companies are in, now probably isn’t the right time to invest in Halliburton stock.
Supply will likely continue to overshadow the demand for oil for the foreseeable future. And even if everything goes right for the company from here on out, recovery will still be a long and slow process.
Jamie Johnson is a personal finance freelance writer and has been writing for InvestorPlace since mid-2019. She writes for a number of other well-known financial sites, including Credit Karma, Quicken Loans, and Bankrate. As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.
