Today I wanted to take a quick look at Halliburton (HAL). They announced they made an offer to purchase Baker Hughes Inc (BHI) for $35 billion. This would represent a merger between the #2 and #3 largest players in the oil field services industry. Halliburton will most liekly sell off many of Baker Hughes assets to avoid anti trust issues, but what does this mean for investors?
For those of you that like an auditory learning format, you can watch my HAL stock analysis video below.
If we look at HAL price per share for the past 6 months, it looks a little worrisome. HAL fell by almost 35% from its 52 week high of $74.33 on 7/3/2014 and reached a low of $48.17 on 10/15/2014. It’s recovered a bit since then and is currently sitting at $49.53. At face value this looks bad, but the funny thing is that this drop in price per share has pretty much nothing to do with Halliburton and is in fact a result of the recent fall in oil price. Back in July oil was sitting at $100/barrel and slid to $85 in October and further to $75 in November.
Cheaper oil means less profits for oil producers, which in turn means less money to invest in the services HAL offers. The business itself is cyclical and this represents a downturn in the entire sector, not just HAL. So, if you believe oil prices will increase again in the future, this short term decrease in oil price represents a great buying opportunity for the long term investor.
Knowing this, lets take a quick look at the fundamentals. For their recent quarter (Q3 2014), Halliburton crushed analyst estimates and posted a 70% increase in profits from the same quarter last year. Not only were profits up, but so were margins. This represents the 9th quarter in a row that Halliburton has exceeded analyst estimates. On top of posting awesome revenue and profit numbers, HAL announced a 20% dividend increase, pushing the yield up to 1.32%. At only a 17.9% payout ratio, which is pretty low, HAL still has plenty of room to increase the dividend down the road. Even the price to earnings look good at 12.70 and represents a favorable valuation.
Overall, I believe HAL is in an area that represents a good buying opportunity for the long term investor. As a result of this, I have added HAL to my watch list and will most likely pick up some shares in the near future. I’ll let you guys know!
What do you think about HAL? Is it worth buying?