Halliburton (HAL) reported mixed second-quarter results before the bell Wednesday as weaker-than-expected results in its completion and drilling segment were a drag. Total revenue rose 14% year over year to $5.8 billion, however, came up a bit short versus analyst expectations of $5.86 billion, according to Refinitiv. Earnings per share (EPS) of 77 cents (excluding a non-operating loss on transactions in Argentina), exceeded the adjusted Refinitiv estimate of 75 cents. Bottom line Revenue at the oilfield services giant missed the mark, but strong execution in both operating divisions allowed profit margins and earnings to exceed expectations. Cash flow performance — which was well above expectations in the quarter — is arguably the most important watch item for those investing in the energy complex, given the industry’s pivot to focus on shareholder returns over production growth at all costs. On the call, management reiterated that growing free cash flow is a top priority, and they expect over 50% of it to be “returned to shareholders this year.” That’s consistent with the new framework outlined back in January. The more cash Halliburton can generate, the more we as investors stand to get back in the form of buybacks and dividends, which is why were are much more pleased with the free cash flow result than we are disappointed with the revenue performance. Speaking of cash returns, the company repurchased $248 million worth of shares during the quarter while returning another $144 million to shareholders via dividends. Looking ahead, management did shave its customer spending growth outlook in North America, but they said they continue to see a strong appetite for oil, citing “demand growth of 2 million barrels per day in the first half of the year compared to the same period last year.” The team also guided for full-year free cash flow generation to be above what analysts were looking for — a material positive for the stock in the back half of the year. This, in our view, outweighs the more conservative North American spending guidance. However, Halliburton shares dropped 3% on Wednesday after a strong run over the past month that we trimmed into on Friday for a small gain. HAL YTD mountain Halliburton YTD performance Management expects exploration and production spending to grow this year and into the future, noting discussions with customers that have plans that extend “into the next decade.” While maintaining our 2 rating , we’re nudging up our price target to $42 per share from $40), reflecting about 18 times 2024 free cash flow per share estimates or about 11.5 times 2024 earnings estimates. Both multiples are about in line with what we have seen over the past three years out of HAL and, in our view, are justified by the resiliency in energy commodity prices and the need for additional production to meet global demand behind multiyear upcycle management is forecasting. Guidance Management maintains a positive outlook on the global…
Read More: Halliburton was a cash machine in Q2 and we’re boosting our price