Options Trade – Halliburton Company (NYSE:HAL) Calls 
Thursday, February 12, 2015

**OPTIONS TRADE: Buy the HAL Apr 2015 45.000 call (HAL150417C00045000) at or under $1.10, good for the day. Place a protective stop loss at $0.45 and a pre-determined sell at $2.00.

by Ian Harvey

February 12, 2015

Introduction

Halliburton Company (NYSE: HAL), an oilfield services company that provides services and products to the energy industry related to the exploration, development, and production of oil and natural gas, warned last December that it might cut some 1,000 workers in 2015 because of the collapse in crude oil prices, however, that figure, according to latest reports will be increased by up to 5,000 to 6,500.

It’s still very early in the process, but crude oil does appear to have set a bottom at $46 per barrel (Brent) and is now slowly creeping its way higher. And the combination of lower labor costs, that is soon to be implemented, and higher revenue could make HAL’s next quarterly very attractive.

Another positive factor is the deal that Halliburton Company’s increased likelihood of Halliburton’s acquisition of Baker Hughes would close by the second-half of 2015. The deal seems poised to take off as the downturn has created an enabling environment where there would be fewer antitrust hurdles. This will enable a smoother and quicker acquisition than previously expected.

The prevailing environment of weak oil price will also enable Halliburton to retain high-value employees. Halliburton would also be able to hold on to a bigger share of related businesses and realize greater accretion.

Technical Details

Halliburton Company has a one year low of $37.21 and a one year high of $74.33.

The stock has a 50-day moving average of $40.30 and a 200-day moving average of $53.40. The company has a market cap of $36.125 billion and a price-to-earnings ratio of 10.60.

Earnings

Halliburton Company last posted its quarterly earnings results on Tuesday, January 20th. The company reported $1.19 earnings per share (EPS) for the quarter, missing the consensus estimate of $1.20 by $0.01. The company had revenue of $8.80 billion for the quarter, compared to the consensus estimate of $8.78 billion.

During the same quarter in the previous year, the company posted $0.93 earnings per share. The company’s revenue for the quarter was up 14.8% on a year-over-year basis. On average, analysts predict that Halliburton Company will post $2.15 earnings per share for the current fiscal year.

Other Positive Factors

• Halliburton's trailing twelve months EPS growth has been the highest among all Oilfield Equipment & Services companies, trading in U.S. markets, which have a market cap greater than $5.0 billion.

• According to Halliburton, it has historically outperformed the market in North America during downturns periods.

• HAL's valuation metrics are very good, the trailing P/E is low at 10.60, and the price to sales ratio is at 1.12. Moreover, its Enterprise Value/EBITDA ratio is very low at 5.75, and its PEG ratio is also very low at 0.99.

• Halliburton delivered industry-leading total company revenue growth and returns in 2014. HAL finished the year with revenues of nearly $33 billion and operating income of $5 billion. Both of which are new records for the company.

Analysts Opinions

The company has been the subject of a number of research reports:-

• 1/27/2015 – Halliburton Company had its price target raised by analysts at Citigroup Inc. from $50.00 to $51.00. They now have a “buy” rating on the stock.

• 1/23/2015 – Halliburton Company was downgraded by analysts at Zacks from a “neutral” rating to an “underperform” rating. They now have a $37.00 price target on the stock.

• 1/23/2015 – Halliburton Company had its price target lowered by analysts at Argus from $64.00 to $50.00. They now have a “buy” rating on the stock.

• 1/15/2015 – Halliburton Company had its “buy” rating reaffirmed by analysts at Deutsche Bank. They now have a $47.00 price target on the stock, down previously from $69.00.

• 1/8/2015 – Halliburton Company is now covered by analysts at KeyCorp. They set a “hold” rating on the stock.

• 1/8/2015 – Halliburton Company is now covered by analysts at Barclays. They set an “overweight” rating on the stock.

• 1/2/2015 – Halliburton Company was downgraded by analysts at Global Hunter Securities from a “buy” rating to a “neutral” rating.

• 12/30/2014 – Halliburton Company was upgraded by analysts at RBC Capital from a “sector perform” rating to an “outperform” rating.

• 12/23/2014 – Halliburton Company was downgraded by analysts at Global Hunter Securities from a “buy” rating to a “neutral” rating. They now have a $42.00 price target on the stock, down previously from $60.00.

• 12/19/2014 – Halliburton Company had its price target lowered by analysts at Citigroup Inc. from $68.00 to $50.00. They now have a “buy” rating on the stock.

• 12/18/2014 – Halliburton Company was upgraded by analysts at RBC Capital from a “sector perform” rating to an “outperform” rating.

• 12/17/2014 – Halliburton Company was downgraded by analysts at Howard Weil from a “sector outperform” rating to a “sector perform” rating. They now have a $46.00 price target on the stock.

• 12/16/2014 – Halliburton Company had its price target lowered by analysts at FBR Capital Markets from $63.00 to $44.00. They now have a “market perform” rating on the stock.

• 12/9/2014 – Halliburton Company was downgraded by analysts at Macquarie from an “outperform” rating to a “neutral” rating.

Halliburton Company has earned a consensus recommendation of “Buy” from the thirty-three brokerages that are covering the stock, American Banking and Market News reports. One investment analyst has rated the stock with a sell recommendation, seven have issued a hold recommendation, twenty-three have assigned a buy recommendation and one has given a strong buy recommendation to the company. The average 1-year price target among analysts that have issued a report on the stock in the last year is $66.75.

Conclusion

Halliburton has a better chance to outperform its peers in this down cycle period. Halliburton has already taken initial steps to address headcount internationally, and it plans to make similar adjustments in North America as well. During the fourth quarter, the company took a $129 million restructuring charge as a first step in preparing for these market changes. According to the company, it has historically outperformed the market in North America during downturns periods.

Halliburton said that it will continue to manufacture its Frac of the Future equipment and plans to take advantage of the opportunity to accelerate the retirement of older fleets which operate at a higher cost, especially in 24-hour operations. According to the company, the value it has seen from the rollout of its Q-10 pumps has truly exceeded its original expectations. Moreover, despite the current market conditions, it feels that it is the right decision for Halliburton's shareholders to move forward with this initiative.

In addition, the combination of Halliburton and Baker Hughes will bring together two highly complementary suites of products and should help to boost margins and generate stronger cash returns for shareholders.

After the retreat in its stock price, it is now excellent opportunities for an options play in HAL's stock at a relatively cheap price.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the HAL Apr 2015 45.000 call (HAL150417C00045000) at or under $1.10, good for the day. Place a protective stop loss at $0.45 and a pre-determined sell at $2.00.



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