Halliburton Company (HAL) shares rose more than 8% during Tuesday's session after two analysts upgraded the stock following its better-than-expected second quarter financial results.
Bank of America upgraded Halliburton stock to Buy with an $18 price target, citing structural changes that should drive higher free cash flow conversion. Analyst Chase Mulvehill also cited cost control efforts that should support higher margins. In addition, ATB Capital upgraded Halliburton stock to Sector Perform with a $14.75 price target after raising 2020 and 2021 EBITDA expectations.
During the second quarter, the oil services company reported a 46% drop in revenue to $3.2 billion, missing consensus estimates by $150 million, and non-GAAP earnings per share of five cents, beating consensus estimates by 17 cents. Management said the that company is charting a "fundamentally different course" after cutting down its workforce and dividend.
The latest spat of analyst upgrades comes after Cowen, Citi, Wells Fargo, and Tudor Pickering Holt analysts weighed in over the past two weeks. The analysts cited Halliburton's second quarter free cash flow – which reached $456 million, or double expectations – as a key factor in the upgrades and higher price targets over the coming year.
From a technical standpoint, Halliburton stock continued its rally from mid-July toward its 200-day moving average at $15.95. The relative strength index (RSI) rose toward overbought conditions with a reading of 64.68, but the moving average convergence divergence (MACD) continues to trade sideways. These indicators suggest potential consolidation ahead.
Traders should watch for consolidation near the 200-day moving average at $15.95 before a potential breakout higher to retest prior highs of $16.45. If the stock moves lower, traders could see a move toward the 50-day moving average at $12.49 or prior lows of $11.51. The volatile but sideways trading suggests that a lot of indecision remains in the market.
The author holds no position in the stock(s) mentioned except through passively managed index funds.