In an April 1 research note, analyst Praveen Narra reported that Raymond James lowered its Q1/19 domestic estimates for Halliburton Co. (HAL:NYSE), primarily reflecting weather and seasonal influences, and raised its international forecasts due to expected increased activity.
In the United States, "Halliburton's Q1/19 likely represents the trough of this cycle" and the "bottom for earnings per share and EBITDA," Narra noted. Accordingly, Raymond James adjusted its U.S. expectations "slightly," but those were offset by revised depreciation, depletion and amortization estimates.
Narra reviewed Raymond James' revisions to its U.S. forecasts for Halliburton. For its Completion and Production (C&P) segment in Q1/19, Raymond James lowered revenue projections by 1.3% for an 8.8% drop and a 350 basis point decrease from Q4/18. The changes were necessary due to significant snowfall in the Rocky Mountains, the Arctic freeze in the Midwest and anticipated additional price pressure. "C&P margins have likely seen the bottom if activity holds," Narra commented.
As for Halliburton's Drilling and Evaluation (D&E) business, it will likely see U.S. declines in Q1/19 revenue and margins by an estimated 9.3% and about 122 basis points, respectively. This is because decreasing the number of rig counts, which has been going on for some time, is expected to continue into Q2/19.
Looking further out, Raymond James expects a more positive scenario for Halliburton's domestic operations in Q2/19 and beyond into 2020, Narra highlighted. For Q2/19, it projects a 90 basis point quarter-over-quarter (QOQ) increase in U.S. C&P margins.
Narra briefly addressed Raymond James' outlook for Halliburton's international business in Q2/19 and full-year 2019. In Q2, the company expects a roughly 5.4% increase in C&P revenue. For all of 2019, it raised its total international revenue growth, C&P and D&E, estimate to 7.3% from 3.4%, and noted that rate should be achieved with minimal capital input.
As for free cash flow, Raymond James expects it will be "meaningful" in 2019 and 2020 due to capex reductions and the company's commitment to limiting spending.
Raymond James has a Strong Buy and a $45 per share target price on Halliburton, whose stock is currently trading at around $30.09 per share.
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Disclosures from Raymond James, Halliburton Co., Apr. 1, 2019
ANALYST INFORMATION
Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination, including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analysts Praveen Narra and J. Marshall Adkins, primarily responsible for the preparation of this research report, attest to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months..
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.
Raymond James & Associates makes a market in shares of Halliburton Company.
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