Will Halliburton See Rising Prices?

With shares of Halliburton (NYSE:HAL) trading around $46, 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 and sand control services, as well as cementing services comprising the bonding of wells, well casing, and casing equipment. The Drilling and Evaluation segment offers drill bits and services, as well as coring equipment and services. It also offers wireline and perforating services, testing services comprising acquisition, and analysis of reservoir information and optimization solutions.

On Monday morning, Halliburton delivered earnings and revenue figures that beat Wall Street’s expectations. Not long ago, the company has agreed to plead guilty to destroying evidence related to the 2010 Deepwater Horizon spill on the Gulf Coast, according to the United States Department of Justice. Despite these struggles, 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 Strong

Halliburton stock has rising steady over the last several months. The stock is now trading near highs for the year, and seems poised to continue this path. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are 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 above its rising key averages, which signals neutral to bullish price action in the near-term.

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

24.91%

3%

0%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

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

On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for Halliburton’s stock.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. In addition, the last four quarterly earnings announcement reactions can 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?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-8.75%

24.72%

-26.87%

-12.16%

Revenue Growth (Y-O-Y)

1.15%

1.54%

3.20%

8.60%

Earnings Reaction

-1.64%

5.58%

5.05%

3.15%

Halliburton has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been mostly pleased with Halliburton’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

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

Halliburton

Schlumberger

Apache

Baker Hughes

Sector

Year-to-Date Return

32.80%

17.55%

4.83%

16.78%

14.22%

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

Conclusion

Halliburton provides essential oil and gas products and services worldwide. The company has been in the news recently, owing to the company’s latest earnings report, as well as a lawsuit involving the 2010 Deepwater Horizon spill. The stock has been steadily rising, and is now trading near highs for the year. Over the last four quarters, investors in the company have mostly been pleased, as earnings have been mixed, while revenue figures have been rising. Relative to its peers and sector, Halliburton has been a year-to-date performance leader. Look for Halliburton to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More from The Cheat Sheet