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Halliburton Is a Bargain So You'd Better Buy Now

NEW YORK (TheStreet) -- Despite what seems like a never ending series of geopolitical hazards, Halliburton (HAL - Get Report) is working to expand its margins and make the company more attractive to investors.

Here's one reason for investing: At around $67.50, shares are up nearly 33% for the year to date.  Back in November I told you Halliburton (HAL - Get Report) was heading to $65 per share. History may be repeating itself.

But let's understand what we're getting into here. Halliburton has to content with some slippery geopolitical issues. Halliburton management has acknowledged delays in getting government approvals for contracts. If issues in Iraq and Russia/Ukraine escalate, the company could experience more delays with critical projects. To some extent, these risks reflect the 9% decline in the share price since Halliburton shares reached a 52-week high of $74.33 in July.

Of course, these risks also exist for rivals Schlumberger (SLB) and Baker Hughes (BHI) . However, Halliburton has strong growth opportunities in North America.

Halliburton is also growing its capabilities in deepwater and mature fields, which, I believe, will help spur long-term double-digit earnings growth over the next three to five years. Management expects to see 11% compounded annual growth in the deepwater well service market by 2020. This is a market that is expected to grow towards $100 billion in the next six years.

The stock, which is trading at a P/E of 21, is cheap. Baker Hughes, which I happen to like, carries a P/E of 26. Based on 2015 earnings estimates of $5.33, according to Yahoo! Finance, Halliburton is one of the best bargains in the energy sector. So with the stock trading at around $67 per share, Halliburton should reach $80 in the next 12 to 18 months.

This is because management has begun to focus more on margin expansion. Also, the company is not afraid to strike partnerships as long as it means boosting the bottom line. Halliburton's recent joint-venture with Petrotech (Xinjiang) Engineering, a subsidiary of SPT Energy Group, makes the company more diversified.

Petrotech's efficient upstream capabilities presents Halliburton with another revenue stream in exploration and production activities. This, combined with Halliburton's fracking operations in the U.S., will add years of growth to both the top and bottom line.

Finding a partner like Petrotech, which has operated the Tarim oilfield for 20 years, won't be easy for Schlumberger or Baker Hughes. For Halliburton, the only question is to what extent management can convince Wall Street that these advantages outweigh future geopolitical risks. I don't believe the company has any intention of ceding its market lead in the fracking/pressure pumping market.

All told, the company remains fundamentally sound. Management's decisions -- up to this point -- have paid dividends. That the company is now in a position to strike partnerships with Petrotech, which would not be possible without prior efficiency improvements. It is a testament to Halliburton's commitment to return long-term value to shareholders. The company's recently announced $3.3 billion stock buyback program is icing on the cake.

Follow @Richard_WSPB

TheStreet Ratings team rates HALLIBURTON CO as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate HALLIBURTON CO (HAL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, solid stock price performance, impressive record of earnings per share growth and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Energy Equipment & Services industry average. The net income increased by 20.2% when compared to the same quarter one year prior, going from $644.00 million to $774.00 million.
  • HAL's revenue growth trails the industry average of 20.7%. Since the same quarter one year prior, revenues rose by 10.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 31.88% and other important driving factors, this stock has surged by 43.82% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • HALLIBURTON CO has improved earnings per share by 31.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HALLIBURTON CO reported lower earnings of $2.37 versus $2.77 in the prior year. This year, the market expects an improvement in earnings ($4.05 versus $2.37).
  • Despite currently having a low debt-to-equity ratio of 0.54, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that HAL's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.73 is high and demonstrates strong liquidity.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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