"We are now valuing HAL at 15x the combined earnings power of HAL and Baker Hughes (BHI) in 2017, discounted back three years at 15%. We believe our growth assumptions and 15% discount rate account for the inherent lack of visibility into 2017. This method results in a value of $60 per share for HAL and $87 for BHI, both equating to about 60% upside," analysts said.
"Looking past current market turmoil, we see a landscape that is very favorable for long-term North American energy production. For liquids, we see peak sustainable production from OPEC coupled with the high cost and scarcity of new finds in other regions as positive drivers for unconventional oil in North America," analysts noted.
Nevertheless, Drexel Hamilton reduced its 2015 EPS estimate to $4.14 from $4.37 "to reflect broadly lower revenue and margins," they said.
"We are also reducing Q4 EPS to $1.10 from $1.21 to reflect the initial impact of lower oil prices on activity in some regions (North Sea, Africa) and more pronounced seasonal softness," analysts added.
Additionally, Halliburton is already responding to the Eastern Hemisphere slowdown, analysts noted, citing the company's announcement last week that it will cut 1,000 jobs in the region.
Separately, TheStreet Ratings team rates HALLIBURTON CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate HALLIBURTON CO (HAL) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income, attractive valuation levels, 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:
- HAL's revenue growth has slightly outpaced the industry average of 15.9%. Since the same quarter one year prior, revenues rose by 16.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Energy Equipment & Services industry. The net income increased by 70.4% when compared to the same quarter one year prior, rising from $706.00 million to $1,203.00 million.
- Despite currently having a low debt-to-equity ratio of 0.50, 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 1.65 is high and demonstrates strong liquidity.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Energy Equipment & Services industry and the overall market on the basis of return on equity, HALLIBURTON CO has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full analysis from the report here: HAL Ratings Report