Oil-field-services firm Halliburton (HAL) reported better-than-expected fourth-quarter results Tuesday, bolstering the Club’s long-term investment case in the energy stock. Total revenue climbed by 30.5% year-over-year, to $5.58 billion, largely in line with analysts’ forecasts. Earnings-per-share (EPS) doubled on an annual basis, to 72 cents a share, ahead of expectations for EPS of 67 cents a share. Bottom line Halliburton served up another strong quarter, with a headline earnings beat , strong margin expansion, solid cash flows and a robust outlook. Even better, the management team doesn’t expect investments in new oil-and-gas projects to wane any time soon. The board authorized management to link a portion of future dividends and buybacks to the company’s free-cash-flow generation. Nonetheless, shares of Halliburton tumbled Tuesday, trading down roughly 2.4%, at $39.59 a share. We don’t view today’s move lower as anything more than profit taking following a very strong year. Given years of material underinvestment in oil-and-gas production in the U.S. and an undersupplied global oil market, management expects demand to sustain the company beyond 2023. The Club, therefore, would see any further weakness in the stock as a potential buying opportunity. Our investment case continues to factor in a relatively strong crude oil market. West Texas Intermediate crude — the U.S. oil benchmark — has climbed by more than 4% since the start of the year, to around $80 a barrel. We are raising our price target on Halliburton to $48 a share, up from $44, while maintaining our two rating on the stock — meaning we would wait for a pullback before buying . Outlook Halliburton’s management said Tuesday that business on the ground “points towards continued oil-and–gas tightness.” This has resulted in a nearly 50% increase in supply side spending in the U.S., with activity growth of almost 30%, ultimately amounting to a roughly 5% increase in production. Management expects “activity to remain strong and service intensity to increase through 2023.” The team noted similarly tight dynamics in international markets, saying several members of the Organization of Petroleum Exporting Countries (OPEC) failed to meet their production quotas in in 2022. Meanwhile, the team expects demand to remain resilient in 2023, boosted by China’s economic reopening. Longer term, “only multiple years of increased investment in both stemming declines and reserve additions will solve [the] short supply” of oil and gas globally. In management’s view, the investments needed to bring supply and demand into balance “will drive demand for oil-field services [for] the next several years.” Capital return initiatives Management on Tuesday announced a 33% increase to the stock’s quarterly-dividend payout, to 16 cents per share, while saying the company would resume stock buybacks under the existing board authorization of roughly $5 billion. The team repurchased $250 million worth of…
Read More: Halliburton’s stellar Q4 shows strong oil demand can sustain it