Summary:

• The recovery in the oil industry heralds better outlook for Halliburton (HAL.US on xStation5)
• The vast majority of brokerage houses rates the company as a ‘buy’
• Halliburton has been moving  in a distinct upward trend towards an important resistance

 Halliburton is one of the world’s largest oil field companies. The corporation struggled earlier during this decade as lower crude prices hit the shale business and had detrimental impact on demand for Halliburton company. However, improvement of the activity in the sector brightens outlook for Halliburton as well.

Recovery in the oil sector should translate into higher revenues

A collapse of crude prices in mid-2014 not only impacted oil companies directly but also affected oil extraction industry, including Halliburton. The company provides technical products and services for petroleum and natural gas exploration and production. Thus, lower activity of shale producers translated into a deep erosion of the company’s revenues. However, oil prices could have bottomed out and an improvement in the sector has helped boost Halliburton’s prospects. This is seen in higher expectations for its revenues for the current fiscal year which are forecasted to exceed the $20bn mark.

 Analysts’ forward expectations for the Halliburton’s revenues for current fiscal year have been upgraded of late. Source: Ycharts

 Assuming that world’s oil stocks continue to decline, it may help prices rebound. It is also worth mentioning that the next OPEC meeting will take place in November which may also pose some upside potential for crude and encourage US shale producers to open new rigs. It should be an opportunity for such companies as Halliburton to increase their revenues. We presented a broader analysis on the oil market here.

 Higher activity of the US shale producers should translate into bigger revenues of such companies as Halliburton. Nonetheless, prospects for the industry depend on global oil prices. Source: XTB Research

 A relative valuation looks compelling

 Halliburton outperforms Schlumberger (SLB.US), its main competitor in the market, based on selected measures. The company’s valuation looks relatively more favourable – its P/E ratio is 23.4x (versus 32.7x for Schlumberger). What’s more, almost all indicators put Halliburton in the better light than its competitors.

 Halliburton’s P/E ratio looks more attractive than the Schlumberger’s one. Source: Bloomberg

Brokerage houses beam with optimism

 The vast majority of brokerage houses remains positive about Halliburton’s outlook. 34 out of 39 recommendations suggest a ’buy’, 4 calls indicate ‘hold’ and only 1 advises ‘sell’. The average price target is at slightly above $54, which gives over 22% upside compared to present market price. Moreover, the short interest currently represents just 2.5% of the company’s shares available as of the latest quarterly filing – in such transactions investors gain, if the stock price declines.

 Brokerage houses are optimistic on Halliburton’s prospects. 34 out of 39 recommendations suggest a ’buy’, 4 calls indicate ‘hold’ and only 1 advises ‘sell’. Source: Bloomberg

After a strong rebound, Halliburton’s stocks are closing towards a strong resistance

 Halliburton’s stocks were moving downward for months. Bulls took over control in the vicinity of $38 handle – this level served already as a local support in May 2016, which marks its importance. The upward momentum has been really solid ever since as the 23.6% retracement of the decline from $58.75 to $38.15 was broken easily. The next target for buyers could be a move towards an upper limit of a quite tight ascending channel. Nevertheless, the 38.2% Fibo retracement which is located near $46 level should act as a more significant resistance. This area has been tested several times since June. However, the present strong upward trend should support bulls and at the end of the day they could make it above this obstacle. On the flipside, a temporary fatigue of buyers may mean a re-test of increasing moving averages – at the chart are drawn 50-, 75- and 150-period EMAs.

 Halliburton’s stock is headed towards an important resistance set by 38.2% Fibo retracement which is located in the vicinity of $46 handle. Source: xStation5

Conclusions

A recovery of the oil industry has boosted Halliburton’s outlook. The stock has been moving along a distinct upward trend and its relative valuation seems to be attractive for many investors. Moreover, the vast majority of brokerage houses maintains an optimistic view on the Halliburton’s prospects. On the other hand, one should bear in mind that the volatility on global oil market still poses a significant risk for the company’s performance.

CFDs and synthetic stocks on Halliburton are available on xStation under the symbol HAL.US. Both long and short positions are possible.