Stock Analysis on Net
Stock Analysis on Net

Halliburton Co. (NYSE:HAL)

This company has been moved to the archive! The financial data has not been updated since February 13, 2019.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Halliburton Co., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 11.71%
01 FCFF0 1,842
1 FCFF1 1,844 = 1,842 × (1 + 0.09%) 1,651
2 FCFF2 1,875 = 1,844 × (1 + 1.71%) 1,503
3 FCFF3 1,938 = 1,875 × (1 + 3.33%) 1,390
4 FCFF4 2,034 = 1,938 × (1 + 4.95%) 1,306
5 FCFF5 2,168 = 2,034 × (1 + 6.58%) 1,246
5 Terminal value (TV5) 45,033 = 2,168 × (1 + 6.58%) ÷ (11.71% – 6.58%) 25,891
Intrinsic value of Halliburton Co. capital 32,987
Less: Debt (fair value) 10,876
Intrinsic value of Halliburton Co. common stock 22,111
 
Intrinsic value of Halliburton Co. common stock (per share) $25.34
Current share price $31.40

Based on: 10-K (reporting date: 2018-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Halliburton Co., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 27,398 0.72 14.95%
Debt (fair value) 10,876 0.28 3.54% = 4.99% × (1 – 28.98%)

Based on: 10-K (reporting date: 2018-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 872,542,842 × $31.40
= $27,397,845,238.80

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (11.30% + 52.80% + 24.40% + 29.30% + 27.10%) ÷ 5
= 28.98%

WACC = 11.71%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Halliburton Co., PRAT model

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Average Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Interest expense 598 705 698 463 396
Income (loss) from discontinued operations, net — (19) (2) (5) 64
Net income (loss) attributable to company 1,656 (463) (5,763) (671) 3,500
 
Effective income tax rate (EITR)1 11.30% 52.80% 24.40% 29.30% 27.10%
 
Interest expense, after tax2 530 333 528 327 289
Add: Cash dividends 630 626 620 614 533
Interest expense (after tax) and dividends 1,160 959 1,148 941 822
 
EBIT(1 – EITR)3 2,186 (111) (5,233) (339) 3,725
 
Short-term borrowings and current maturities of long-term debt 36 512 170 659 14
Long-term debt, excluding current maturities 10,421 10,430 12,214 14,687 7,840
Company shareholders’ equity 9,522 8,322 9,409 15,462 16,267
Total capital 19,979 19,264 21,793 30,808 24,121
Financial Ratios
Retention rate (RR)4 0.47 — — — 0.78
Return on invested capital (ROIC)5 10.94% -0.58% -24.01% -1.10% 15.44%
Averages
RR 0.62
ROIC 0.14%
 
FCFF growth rate (g)6 0.09%

Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).

1 See details »

2018 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 598 × (1 – 11.30%)
= 530

3 EBIT(1 – EITR) = Net income (loss) attributable to company – Income (loss) from discontinued operations, net + Interest expense, after tax
= 1,656 – 0 + 530
= 2,186

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,186 – 1,160] ÷ 2,186
= 0.47

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,186 ÷ 19,979
= 10.94%

6 g = RR × ROIC
= 0.62 × 0.14%
= 0.09%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (38,274 × 11.71% – 1,842) ÷ (38,274 + 1,842)
= 6.58%

where:

Total capital, fair value0 = current fair value of Halliburton Co. debt and equity (US$ in millions)
FCFF0 = the last year Halliburton Co. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Halliburton Co. capital

FCFF growth rate (g) forecast

Halliburton Co., H-model

Microsoft Excel
Year Value gt
1 g1 0.09%
2 g2 1.71%
3 g3 3.33%
4 g4 4.95%
5 and thereafter g5 6.58%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 0.09% + (6.58% – 0.09%) × (2 – 1) ÷ (5 – 1)
= 1.71%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 0.09% + (6.58% – 0.09%) × (3 – 1) ÷ (5 – 1)
= 3.33%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 0.09% + (6.58% – 0.09%) × (4 – 1) ÷ (5 – 1)
= 4.95%