Rising oil prices coupled with a "more positive" view of the domestic energy market bode well for Halliburton Company HAL, according to Bank of America Merrill Lynch.
The Analyst
BofA's Timna Tanners upgraded Halliburton's stock rating from Neutral to Buy with a price target lifted from $52 to $59.
The Thesis
Oil prices could see ongoing upward momentum through the balance of the decade for two primary reasons, Tanners said in the upgrade note. (See the analyst's track record here.)
- Crude supply from Venezuela continues to collapse, and this is a problem that will likely persist into 2019.
- U.S. shale production is unlikely to be strong enough to keep up with growing demand over the coming years.
BofA is modeling WTI crude to trade at $69 per barrel in 2019, which represents an increase from the firm's prior $56-per-barrel estimate, Tanners said. The new estimate is above the Bloomberg consensus estimate of $62.62 a barrel, but justified based on "constructive feedback" from the Offshore Technology Conference, the analyst said.
The 83-percent correlation between U.S. rig counts and WTI oil prices implies continued growth in rigs through 2018, Tanners said. The total rig count is modeled to end 2018 at 1,141 rigs, up 10.5 percent compared to a prevailing 1,032 rigs.
BofA's more positive view of U.S. rigs justifies an upgrade of Halliburton's stock to a bullish stance, Tanners said.
Price Action
Halliburton shares were down 0.11 percent at $52.64 at the time of publication Thursday afternoon.
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