Halliburton as a Value Trap in a Cyclical Downturn: Why Investors Should Wait

Halliburton (HAL) is currently trading at a forward P/E of 10.59, a valuation that might tempt bargain hunters. But beneath the surface, a perfect storm of cyclical headwinds, declining profitability, and macro risks is turning this seemingly cheap stock into a value trap. Investors would be wise to hold off until clearer signs of stabilization emerge.

The Valuation Conundrum

At first glance, Halliburton’s low forward P/E seems appealing. However, this metric masks a stark reality: the company’s earnings are in freefall. Net income for Q1 2025 dropped to $204 million, a 66% decline from Q1 2024. Even adjusted earnings fell 21% year-over-year to $0.60 per share. With analysts now forecasting further declines—Griffin Securities slashed its Q2 2025 EPS estimate to $0.56—the "cheap" valuation is based on a shaky foundation.

Cyclical Headwinds: Oil Prices and Drilling Activity

The energy sector is cyclical, and Halliburton is no exception. West Texas Intermediate (WTI) crude has plummeted to the low $60s—a level many shale producers say is unsustainable. At these prices, U.S. rig counts are stagnating, with the showing no meaningful growth since early 2024.

Halliburton’s North American revenue fell 12% year-over-year in Q1, driven by reduced stimulation activity and completion tool sales. The problem isn’t just price—it’s producer behavior. As the Dallas Fed’s energy survey notes, drillers are delaying projects when prices dip below $65/barrel. With the EIA projecting $61.81/barrel for 2025, this pain isn’t temporary.

Tariffs: A New Cost Pressure

Adding to the mix are tariffs, which Halliburton executives now admit will shave 2–3 cents per share from Q2 earnings. The pain isn’t evenly distributed: 60% of the hit is concentrated in its Completion and Production segment, which includes hydraulic fracturing—a critical U.S. shale service. CFO Eric Carre warned that “clarity and stability” on trade policies are essential. Until then, costs will remain elevated, squeezing margins.

Regional Declines vs. Fragile Gains

While Halliburton’s international business showed pockets of strength—Europe/Africa revenue rose 6%, and the Middle East/Asia segment grew 6%—these gains were offset by catastrophic declines elsewhere. Latin America revenue collapsed 19%, driven by Mexico’s Pemex cutting back on activity. CEO Jeff Miller admitted that North America’s outlook remains “cautious,” with producers re-evaluating 2025 budgets.

Analyst Downgrades and the “Softer” Outlook

Analysts are no longer betting on a rebound. Griffin Securities’ Q2 EPS cut is just the start. The broader consensus for 2025 now sits at $2.35 per share, down from earlier projections of $2.64. Even Halliburton’s own guidance is muted: international revenue is expected to be “flat to slightly down” due to macro risks.

The Macro Risk Factor

Beyond oil prices and tariffs, broader macroeconomic trends loom large. The U.S. GDP forecast for 2025 was recently slashed to 1.5%, while OPEC+’s overproduction continues to flood global markets. These factors create a “bloodbath” environment for oilfield services, as one analyst described it.

Why Wait?

Halliburton isn’t without its strengths—its autonomous fracturing technology (Octiv® Auto Frac) and international contract wins are promising. But these positives are outweighed by near-term risks. The stock is a trap because:
1. Valuation discounts aren’t yet justified: The 10.59 forward P/E assumes earnings recover to $3.60 in 2025—a target now looking overly optimistic.
2. Sector-wide weakness: Schlumberger and Baker Hughes are also cutting guidance, signaling that the downturn isn’t Halliburton-specific.
3. No clear catalyst: Until oil prices stabilize above $70/barrel, rig counts rebound, and trade policies clarify, there’s little to spark a turnaround.

Final Take

Halliburton’s valuation may look tempting, but investors are better off waiting. The company is navigating a perfect storm of cyclical decline, trade headwinds, and macroeconomic uncertainty. Until these pressures ease—and clearer demand recovery emerges—this stock is best avoided.

Action Item: Hold off on buying Halliburton until the oil sector stabilizes or the company delivers a meaningful beat on its 2026 guidance. The risks here are too high to justify the reward at current levels.