Where Will Halliburton Go Next?

With shares of Halliburton (NYSE:HAL) trading around $41, is HAL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Halliburton provides a range of services and products for the exploration, development, and production of oil and natural gas. The company operates in two segments, Completion and Production, and Drilling and Evaluation. The Completion and Production segment offers production enhancement services, including stimulation services and sand control services; and cementing services comprising bonding the well and well casing, and casing equipment. The Drilling and Evaluation segment offers drill bits and services; as well as coring equipment and services; wireline and perforating services; and testing services comprising acquisition and analysis of reservoir information and optimization solutions. As consumers and business demand for energy continues to rise, companies like Halliburton are well positioned to provide products and services well into the future.

T = Technicals on the Stock Chart are Mixed

Halliburton stock has witnessed its fair share of volatility over the last several years. The stock looks to be consolidating a bit but may be headed towards higher prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Halliburton is trading around its rising key averages which signal neutral to bullish price action in the near-term.

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HAL

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Halliburton options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Halliburton Options

30%

56%

53%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Halliburton’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Halliburton look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-26.87%

-12.16%

-1.25%

21.43%

Revenue Growth (Y-O-Y)

3.20%

8.60%

21.89%

30.03%

Earnings Reaction

5.58%

5.05%

2.19%

2.4%

Halliburton has seen increasing revenue figures over the last four quarters. From these figures, the markets have been happy with Halliburton’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Halliburton stock done relative to its peers, Baker Hughes (NYSE:BHI), Schlumberger (NYSE:SLB), Apache (NYSE:APA), and sector?

Halliburton

Baker Hughes

Schlumberger

Apache

Sector

Year-to-Date Return

19.78%

10.14%

6.02%

-9.89%

9.58%

Halliburton has been a relative performance leader, year-to-date.

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Conclusion

Halliburton provides energy products and services that are essential for the daily operations of business and in the daily lives of consumers. The stock looks to be getting ready to explore higher prices, but not until it digests recent gains. Revenue has been steadily growing while earnings have been mixed, regardless, investors have been excited about the recent earnings reports. Relative to its peers and sector, Halliburton has led in year-to-date performance by a wide margin. Look for Halliburton to OUTPERFORM.

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