Halliburton Puts Up a Narrow Beat in Q1 but Long-term Headwinds Remain

By Motley Fool Staff Markets Fool.com

On this segment from Market Foolery, Chris Hill, Million Dollar Portfolio's Jason Moser, and Stock Advisor Canada's Taylor Muckerman talk about oil services giant Halliburton (NYSE: HAL)-- the largest land-based driller in North America -- which delivered a small earnings beat for the first quarter. Revenues are up despite the winter season, but its growth outlook is cautious.

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A full transcript follows the video.

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This video was recorded on April 24, 2017.

Chris Hill: Let's start with Halliburton.Firstquarter profits came inslightly higher than expected. I guess they'redoing some more drilling in North America.

Taylor Muckerman:Yeah, that's the key here. Italways is for Halliburton. The largest land driller in North America. Starting to gain aninternational presence. But over 50% relies on North America. Revenue there is up 24%quarter over quarter. Typically, you seea little bit less of rig activity in the first quarter due to winter weather, but this was an outlier. U.S. land up 30%, so driving that. International revenues down about 8% quarter over quarter, but Latin America looking strong out of Brazil and Mexico. And they did call a bottom for theEastern Hemispherein terms of rig count. But they'renot looking for significant growth over the 2016 levels. Buthopefully no less of an impact there, as rig countsstabilize or grow a little bit into the second half.

Hill:What shouldinvestors expect in terms of the business ofHalliburton over the next, say, three years, andhow much of it should betied to the price of gas? Because this is a stock that had doneso well for so long, and like everybody else,affected by the price of gas. You among others said on this show, "If anyone is built to withstand a downturn in the price of oil, it's Halliburton."

Muckerman:Yeah,it certainly is, and it has shown that. Theprice has rallied back quite significantly. Evenin the downturn, it was there to support its customers, giving them price cuts, andeven helping finance some of the drilling that these companies were trying to do through Halliburton. They showed good faith to their most loyal customers, andI think they're going to be rewarded for that. Granted, they need to nowincrease their prices a little bit. Not too dramatically, because oil prices are stillpretty subdued. We've seen some supply worries, so prices are now back below $50. But, for this company, near term,definitely some adjustments to be made, you'rebringing a lot of equipment back online, they've talked about hiring a lot more people coming up. Margins did get impacted by that a little bitin the first quarter here. So,I would look for them to maybe not try to get outahead of themselves too much,because as you can see, price of oil isn't set to rise too dramatically in the near term. But North America drillers, still veryravenous appetite to drill. Andthis is the company that's servicing them. So,I have very high hopes for this company over the next three years, butdon't get too far ahead of yourselves inthe near term.

Jason Moser:Yeah. We actually sold Halliburton from MDP not too terribly long ago. It was a good investment for us. We made some money with it. Butpart of it was based on just that --we don't see that catalyst taking oil prices a whole heck of a lot higher over the course ofthe coming couple of years. That's the proxy we use to see how these guys are doing. I've been of the thought that, we wouldcertainly see oil prices bounce back to $50 to $70 over the coming five years, simply because of the supply and demanddynamics at play here. I'm becoming a little bit more skeptical that may be the case, because we're seeing a lot of consideration for otheralternatives out there. Really, I thinkTeslahas made a lot moreprogress here to this point than a lot of people probably thought they would have. They'reobviously not selling the same amount of cars asFordandGMare, but they aremaking a lot of progress. And I think maybe the mindset is such that there are alternatives out there, it does matter, a lot of people are getting on board with alternative energy. I can't help but wonder if these oil plays aren'tnecessarily going to get back to those days of $70 to $80 oil. If they don't,how much upside can we really expect from them? AndHalliburton is certainly a big player in the space,one of the biggest. I think theBaker Hughesdealbeing called off probably ...

Muckerman:Yeah,crimped their style just a little bit. Yeah,lost a few billion dollars. But yeah, to your point, oilprices are still suffering, and that's with OPEC at99% compliance of their announced cutslast November, which is unheard of for OPEC. Theiraverage compliance, generally, is in the 75% to 85% range. They're at 99% right now,and it's still not affecting the price of oil to the upside. So, I expect another cut from them,or at least to maintain their cut after the six month review period,which is coming up pretty soon. I expect them to maintain ormaybe even cut a little bit more, becauseoil prices are still not where they need to be for those OPEC countries to sustain theirgovernment spending habits.

Chris Hill has no position in any stocks mentioned. Jason Moser has no position in any stocks mentioned. Taylor Muckerman owns shares of Halliburton and Tesla. The Motley Fool owns shares of and recommends Ford and Tesla. The Motley Fool has a disclosure policy.