We are raising our rating on Halliburton Co. (HAL) from "hold" to "buy" and setting a price target of $32, explains Bill Selesky, an analyst with Argus Research, he independent Wall Street research firm.

Our upgrade reflects improving energy market fundamentals, which we expect to result in higher 2022 capital spending by E&P companies. We look for capital spending to remain strong even if oil prices decline 10%-15% from current levels in a typical commodity price pullback.

Founded in 1919, Halliburton is one of the world’s largest energy services companies, with over 40,000 employees and operations in more than 70 countries.

The company helps customers maximize value throughout the lifecycle of the reservoir — from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and the optimization of production throughout the life of the asset.

On October 19, Halliburton reported an adjusted 3Q21 net profit from continuing operations of $248 million or $0.28 per diluted share, up from $100 million or $0.11 per share in 3Q20.

We are raising our 2021 EPS estimate to $1.04 from $1.02 based on the stronger-than-expected 3Q21 results and the recent improvement in crude oil pricing, which has strengthened demand for oilfield services and equipment. The consensus forecast is $1.05.

We are also boosting our 2022 EPS estimate to $1.63 from $1.49 to reflect our commodity price forecast for 2022, which assumes average WTI crude oil prices of more than $65 per barrel. The 2022 consensus is $1.61. Our long-term earnings growth rate estimate is 8%.

As noted in prior reports, in 3Q20, the company announced the creation of Halliburton Labs, a collaborative environment for entrepreneurs, academics, investors, and industrial labs interested in clean energy development. Eight companies are currently participating in the initiative, including Enexor BioEnergy, Momentum Technologies, and OCO Inc.

Despite our preference for oil service companies with more exposure to international markets, we believe that North America, where Halliburton does 60% of its business, will also benefit from higher E&P spending. We also expect Halliburton to benefit from margin growth and accelerated debt deleveraging, and look for a significant dividend increase in 2022.

Halliburton has a share repurchase program, but has not repurchased any stock since 2Q19 (when it repurchased $100 million). We do not expect buybacks in 2021 but believe that the company could resume repurchases next year.

We believe that current multiples are attractive based on the company’s industry position and financial strength. Our 12-month target price is $32, or 20-times projected 2022 EPS, near the midpoint of the historical average range.

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