Helped by high benchmark prices, the number of drilling rigs in the United States has risen sharply as commercial crude oil inventories continue to decline. According to the EIA, production in the United States, OPEC + countries and other regions is expected to exceed demand in the coming quarters. Thus, petroleum service companies, including Halliburton (NYSE: HAL) should see a recovery in revenues and an improvement in cash flow. However, the EIA expects Brent to average $ 66 / bbl in 2022, nearly 20% below current levels, which will put pressure on the company’s long-term profits. Thus, Trefis believes that the HAL share has reached its short-term potential with the probability of a correction by next year. We highlight quarterly trends in revenue, earnings, share price and expectations for the third quarter of 2021 in an interactive dashboard analysis, Halliburton Profits Overview.
[Updated 10/01/2021] – Is there a better alternative to Halliburton
Actions of National Oilwell Varco (NYSE: NOV) currently trading at 45% below pre-Covid levels as observed in January 2020 while the actions of its competitor Halliburton (NYSE: HAL) have almost recovered. Does that make NOV stock a better choice than HAL? The two companies provide oilfield services, including drilling, completion and production solutions, to upstream oil and gas companies in the United States and abroad. Due to lower benchmark price expectations in the coming years, NOV and HAL incurred significant depreciation charges in 2020, causing their asset base to shrink by more than 20%. While HAL stock is a better choice for realizing regular dividend income in the years to come, the current lower valuation multiple (P / S) of NOV may offer quick wins to investors as the numbers go down. platforms are improving. We compare a multitude of factors such as historical revenue growth, returns and valuation multiple in an interactive dashboard analysis, National Oilwell Varco vs. Halliburton: industry peers; Which action is a better bet?
1. Income growth
Halliburton’s growth has been stronger than that of National Oilwell Varco in recent years, with Halliburton’s revenues growing at an average rate of 12%, from $ 15.8 billion in 2016 to $ 22.4 billion in 2019. National Oilwell Varco’s revenue grew at an average rate of 5%, from 7, $ 3 billion in 2016 to $ 8.5 billion in 2019. However, HAL and NOV grew by 28%. and 36% revenue contraction in 2020, respectively.
- Halliburton’s two operating segments, Completion and Production and Drilling and Assessment, contribute 63% and 37% of total revenues, respectively. An uncertain demand environment has prompted upstream companies to limit capital spending and improve asset productivity. Thus, the production crunch has resulted in a rise in benchmark prices as the world recovers from the coronavirus crisis.
- The three operating segments of National Oilwell Varco, Wellbore Technologies, Completion & Production Solutions and Rig Technologies, respectively contribute 37%, 32% and 31% of total sales. The company has seen widespread growth across all segments due to increased drilling and completion services in the United States and other countries prior to the pandemic. According to recent filings, the Rig Technologies segment experienced strong growth in the second quarter, supported by demand for renewable energy.
- Due to lower rig count numbers in the U.S. and other countries, Halliburton and National Oilwell Varco observed a 13% (YoY) and 21% (YoY) revenue contraction. year-on-year) in the first half of 2021, respectively.
2. Returns (Profits)
Since both companies have suffered significant impairment losses over the past two years, we compare their cash-generating capabilities. In 2019, Halliburton generated $ 2.4 billion in operating cash flow for total revenue of $ 22.4 billion, implying an operating cash flow margin of 11%. While National Oilwell Varco reported $ 8.5 billion in total revenue and $ 0.7 billion in operating cash flow, which translates to an 8% margin.
- Halliburton’s cash-generating capabilities are much greater than that of National Oil Varco, which has enabled HAL shares to recover quickly. In 2020, the P / S multiple of Halliburton and National Oilwell Varco was 1.0 and 0.6, respectively.
- Before the pandemic, Halliburton returned 26% of operating cash to shareholders as dividends and invested 62% in property, plant and equipment as capital expenditure. Whereas National Oilwell Varco had used its operating cash as part of its growth strategy.
- Both companies have cash controls in place and limited capital spending as well as shareholder returns due to the pandemic. Considering Halliburton’s higher cash-generating capabilities and historical dividend trends, this is a good choice for earning consistent dividend income. (Related: Speculate on technology stocks? Why not consider Schlumberger stocks instead)
By annual filing, Halliburton and National Oilwell Varco declared $ 9 billion and $ 1.8 billion in long-term debt, respectively. The shrinking asset base of both companies due to high depreciation charges and long-term debt obligations is a drag on long-term shareholder returns.
- Higher financial leverage coupled with continued income growth is a boon for generating excess returns from stocks. However, interest charges take a toll on finances as income declines, limiting dividend payments and capital spending.
- Halliburton’s higher leverage against National Oilwell Varco makes HAL stock a riskier bet.
- Last year, NOV and HAL reported a 25% and 20% (year-over-year) contraction in their asset base due to write-downs. (Related: Halliburton stock looks overvalued)
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