Oil & gas companies have been facing the perfect storm lately after the Covid-19 outbreak disrupted their operational capacity while the oil price shock caused by the clash between Saudi Arabia and Russia sent the market into a downward spiral that ended in an unprecedented situation: negative oil spot prices.
This severe turmoil has prompted a chain of reaction that, while benefiting some, are potentially harming others, Halliburton included.
OPEC+ production cuts, voluntary cuts from non-OPEC countries including Norway and the United States, and a potential recovery in global oil demand have had a positive impact on oil prices in the last few weeks, resulting in a 30 per cent jump in the West Texas Intermediate (WTI) from May 7 to May 18.
Great news for oil and gas producers indeed, but not that great for those that supply crucial equipment for the industry, as lower production means lower demand as a result of a lower number of rigs in operations.
That’s where things get a little tricky for Halliburton. Even though the company recorded a decent first quarter, things may get ugly in the following months, as the sustainability of this higher level of demand is yet to be seen.
A second wave of the virus could send everybody back home, while a worse-than-expected economic slowdown could threaten the current status quo, possibly triggering further cuts, resulting in fewer operational rigs, and so on.
These are not easy waters to navigate for Halliburton and it is not an environment that makes a Halliburton share price prediction any easier, yet one thing holds true: the company seems to be financially prepared to withstand the turmoil while it lasts.
Let’s start by drilling into how the company has been doing lately.
Halliburton stock analysis
During today’s market rally, Halliburton (HAL) shares broke through a late-April $11 resistance indicating a fairly bullish outlook in the short term, even though the actual drivers behind that surge are somehow disputable.
If we were to see a trend reversal, this particular channel seems to be persistent, possibly as investors are still expectant about how the price of the front-month oil future – due on May 19 – is going to behave.
Additionally, economies are reopening all over the world and while there’s significant hope that things may start to go back to normal, there’s also a lot of uncertainty over a potential second wave of the virus, which would result in lower demand and lower oil prices.
Therefore, even though this is a bullish signal, we still have to wait and see if it is a sustainable upward price trend before relying too much on it to draw a short-term Halliburton stock price forecast.
At this point, the stock is trading 33 per cent below its 200DMA and almost 42 per cent above its 50DMA, while close to the middle ground of its 52-week highs and lows of $4.61 and $25.59.
Trade Halliburton - HAL CFD
Halliburton stock news
Perhaps the most important HAL stock news is related to the release of the company’s quarterly earnings for the first three months of 2020 on April 20.
In this sense, while the company refused to provide guidance for the full year in light of the uncertainty surrounding its operations, there were some eye-catching developments that are worth pointing out.
First of all, the company mentioned that even though these quarterly results recollected a portion of the impact of its reduced activities, investors should expect further declines in revenues and profits, particularly from North America.
It is worth noting that North American operations account for roughly half of Halliburton’s revenues, even though the company has managed to grow its Middle East/Asia operations over the years.
Moreover, this quarter reflected a $1.1bn pre-tax asset impairment charge that took a hard bite out of the company’s profits. This charge resulted from a write-off of certain long-lived assets that are considered worthless if some oil rigs and operations are shut down.
Halliburton share price forecast
One of the main challenges right now in drafting a comprehensive Halliburton stock projection is to estimate how much the company may generate in the following quarters considering an unstable oil market situation.
According to the latest report from Baker Hughes, the number of active oil rigs around the world dropped by 30 per cent year-on-year by the end of April, while the rig count in the US slid by 44 per cent, dropping to 566 active rigs by the end of the month as well.
Analysts surveyed by Koyfin and Zacks.com are estimating revenues in a range of $3.50 to $3.60 billion for the second quarter of 2020, which represents a 40 per cent decline compared to the same quarter last year, fairly in line with the report cited above.
Meanwhile, annual revenues are expected to end the year between $14.9 and $15.1 billion, which is 33 per cent less than what the company generated the year before. Again, in line with the assumption that oil prices and demand are not likely to recover for the rest of the year.
As for earnings, or in this case losses, the situation is trickier as asset impairments may continue to drive down profitability on paper, even though adjusted losses per share – which exclude impairments – are expected to end the year between $0.21 and $0.07.
Keeping all that in mind, a HAL stock forecast at this point should focus more on the company’s ability to survive over the course of the next 12 months, rather than in its short-term earnings generation capacity.
That said, analysts surveyed by Koyfin have set a price target for HAL at $10.22, which is 11.2 per cent below its current price. For this reason, and considering the fundamentals outlined previously, investors may incline towards a bearish Halliburton stock price prediction for the next 12 months.
However, the current bullish trend outlined in the stock analysis section may provide a good short-term opportunity to profit from positive market sentiment related to a potential vaccine for the virus and the prospect of economies successfully reopening all around the world.
Do you want to become a part of the oil market and make your own bets on the future of Halliburton stock? Join Capital.com where all major oil stocks are at your fingertips.