April 25, 2023
Halliburton Company

1Q23 - Something's gotta give

Our view: HAL continues to trade at an EV/EBITDA discount to the SLB/BKR
average despite broadly average EBITDA growth and FCF yield metrics. We
think the discount fairly reflects its higher exposure to the North America
market, where the trajectory of E&P spending growth is more uncertain.
We adjust our 2023/24 adj. EBITDA estimates by +4/-2% and maintain our
Outperform rating and $43 price target.

Key points:
Solid results. Halliburton reported a solid quarter as key financial metrics
of revenue, EBITDA, and adj. EPS were 3-7% ahead of Street expectations.
Completions & Production (C&P) revenue of $3.41Bn was 6% ahead of the
Street, while Drilling & Evaluation (D&E) operating margins of 16.3% came
in above expectations (RBC 15.6%). Finally, HAL repurchased $100MM
shares under its renewed repurchase authorization.

Targeting +30% y/y FCF growth. For 2023, HAL expects to generate over
30% y/y FCF growth ($1.60Bn) and return at least 50% to shareholders
through dividends and buybacks. On our FY23 numbers, HAL is trading at
a 6% FCF yield versus the SLB/BKR average of 5%. HAL's capital guidance
now sits at 6% of revenue, the top end of its 5-6% range. We do not take
this as a sign that the company is significantly expanding capex, given some
catchup from delays in long-lead items over the past year.

E&P spending outlook remains bullish. On the call, HAL increased its
expectation for International E&P spending growth in 2023, seeing 'highteens' y/y spending growth from its prior guidance of 'mid-teens'. There
was no change to its North America spending outlook for at least 15%
increase y/y. Our outlook for y/y D&C spending growth in the Lower-48
is 12%. In FY23, we expect EBITDA to grow at 21%, versus the BKR/SLB
average of 20%.

Adjusting estimates. Our 2023/24 EBITDA estimates adjust by +4/-2% to
$5.09/5.56Bn and compare to the Street’s $5.03/5.71Bn. Our 2023/24
revised EPS estimates are $3.14/3.60. Our 2Q23 EBITDA estimate of
$1.25Bn increases 9% based on segment guidance.

Valuation below large cap peer average. In 2023E/24E HAL is trading at
7.0/6.4x EV/EBITDA multiples versus SLB at 10.0/8.5x and BKR at 9.1/7.6x.
Relative to large cap peers, HAL is trading at the largest discount to its long term FY2 EV/EBITDA average (1.6x discount vs SLB/BKR: avg 0.6x).

Maintain Outperform rating and $43 price target. Our price target is based
on an 8.0x multiple of our 2024 EBITDA estimate. Our target multiple is
in line with HAL’s current trading range and represents a slight discount
to the large cap OFS peer average, reflecting lower International revenue
diversification and long-term growth trend exposure, partially offset by
stronger EBITDA margins.