Halliburton Co. (NYSE:HAL) reports preliminary financial results for the quarter ended 2012-09-30.
Halliburton Co.’s analysis versus peers uses the following peer-set: Schlumberger Limited. (NYSE:SLB), National-Oilwell Varco, Inc. (NYSE:NOV), Baker Hughes Incorporated (NYSE:BHI), Cameron International Corporation (NYSE:CAM), Technip (PINK:TKPPY), Weatherford International Ltd (NYSE:WFT), Oceaneering International (NYSE:OII), Dresser-Rand Group Inc. (NYSE:DRC), Superior Energy Services, Inc. (NYSE:SPN) and Seacor Holdings, Inc. (NYSE:CKH). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
|Quarterly (USD million)||2012-09-30||2012-06-30||2012-03-31||2011-12-31||2011-09-30|
|Revenue Growth %||(1.7)||5.3||(2.8)||7.9||10.3|
|Net Income Growth %||(18.4)||17.3||(29.9)||6.8||14.7|
|Net Margin %||8.6||10.3||9.2||12.8||13.0|
|ROE % (Annualized)||16.4||21.0||18.8||28.4||28.3|
|ROA % (Annualized)||9.4||11.9||10.5||16.1||16.5|
Halliburton Co. trades at a lower Price/Book multiple (2.1) than its peer median (6.4). We classify HAL-US as Harvesting because of the market’s low expectations of growth (PE of 11.1 compared to peer median of 19.2) despite its relatively high returns (ROE of 21.0% compared to the peer median ROE of 13.0%).
The company’s median net profit margins of 10.2% and relative asset efficiency (asset turns of 1.2x compared to peer median of 0.8x) give it some operating leverage. HAL-US’s net margin is less than (but within one standard deviation of) its five-year average net margin of 11.4%.
The company enjoys both better than peer median annual revenue growth of 38.1% and better than peer median earnings growth performance 67.4%. HAL-US currently converts every 1% of change in annual revenue into 1.8% of change in annual reported earnings. We view this company as a leader among its peers.
HAL-US’s return on assets is above its peer median both in the current period (12.2% vs. peer median 6.0%) and also over the past five years (12.6% vs. peer median 8.5%). This performance suggests that the company’s relatively high operating returns are sustainable.
The company’s gross margin of 25.3% is around peer median suggesting that HAL-US’s operations do not benefit from any differentiating pricing advantage. However, HAL-US’s pre-tax margin is more than the peer median (15.1% compared to 11.1%) suggesting relatively tight control on operating costs.
Growth & Investment Strategy
While HAL-US’s revenues growth has been above the peer median (10.7% vs. 6.0% respectively for the past three years), the stock’s PE ratio of 11.1 is less than the peer median. This implies that the company’s earnings are peaking and the market expects a decline in its growth expectations.
HAL-US’s annualized rate of change in capital of 20.3% over the past three years is around the same as its peer median of 18.5%. This investment has generated a better than peer median return on capital of 13.8% averaged over the same three years. The greater than peer median rate of return suggest that the company may be under investing in growth.
HAL-US’s net income margin for the last twelve months is around the peer median (10.2% vs. peer median of 8.7%). This average margin and relatively conservative accrual policy (1.2% vs. peer median of 0.8%) suggests possible understatement of its reported net income.
HAL-US’s accruals over the last twelve months are around zero. However, this modestly positive level is also greater than the peer median which suggests some amount of building of reserves.