Halliburton Company HAL hit a 52-week low of $25.16 on Friday, extending its year-long decline to nearly 21%. The stock has significantly underperformed both the Zacks Oil and Gas Field Services industry, which gained 9.9%, and its peer SLB SLB, which fell 10% over the same period. The reason? Halliburton’s heavy exposure to North America, a region facing pricing pressure and weaker drilling activity.

HAL, SLB 1-Year Stock Performance

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Unlike SLB and Baker Hughes BKR, which generate only 20-25% of their revenues from North America, Halliburton relies on the region for over 40% of its business, making it more vulnerable to regional slowdowns.

Adding to investor concerns, the Zacks Oil & Gas Field Services industry ranks in the bottom 17% of all industries, signaling further underperformance ahead. Analysts have taken note of the weakness — over the past 30 days, the Zacks Consensus Estimate for Halliburton’s 2025 EPS has dropped 10%, from $2.97 to $2.67. Given these challenges, let’s break down why Halliburton stock may not be the best bet right now.

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North America Headwinds Pressure Revenue Growth

Halliburton’s North American revenues fell 8% year over year in 2024, and management expects another low- to mid-single-digit decline in 2025. A significant factor behind this is lower negotiated pricing for its pressure pumping services. The company remains fully contracted, but with weaker pricing across parts of its fleet, the first quarter of 2025 will bear most of the margin impact.

Additionally, the U.S. rig count continues to trend downward, with completion activity slowing and oil demand growth showing signs of weakness. While Halliburton is expanding in artificial lift and completion tools, these segments are not enough to offset the broader downturn in North America. Investors should brace for continued pressure on Halliburton’s top-line performance in the coming quarters.

Margin Compression Amid Weaker Demand

Profitability is taking a hit as well. In the December quarter, Halliburton’s Completion & Production operating margin was 20%, but management has guided for a sequential decline of 1.75-2.25% in the January-March period. Meanwhile, Drilling & Evaluation margins could fall by another 0.5%. This signals growing challenges in maintaining profitability, particularly in the face of weaker pricing power.

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The impact of margin contraction is evident in Q4 results. Completion & Production revenues fell 4% sequentially, with operating margins declining by 49 basis points due to weaker North American stimulation activity. At the same time, Halliburton’s Drilling & Evaluation segment saw margins slip by 44 basis points, reflecting increased competition and cost pressures.

With rising tax expenses (expected to increase by 300 basis points to 25.5% in 2025) and higher interest costs, Halliburton’s ability to maintain its strong margins is under threat. This could weigh heavily on earnings, making the stock less attractive despite its seemingly low valuation.

Geopolitical and Economic Uncertainty Add Risk

Halliburton’s challenges extend beyond North America. While international revenues grew 6% in 2024, growth is expected to stall in 2025, mainly due to a sharp activity decline in Mexico. Excluding Mexico, international revenues are projected to grow at a low- to mid-single-digit rate, but this is not enough to offset the losses in North America.

On the macroeconomic front, OPEC+ supply cuts have helped stabilize oil prices, but any unexpected production shift could trigger market volatility. Meanwhile, Mexico’s new administration is restructuring Pemex, aiming to reduce debt and inefficiencies, which could impact Halliburton’s business in the region.

Valuation Concerns: Is the Premium Justified?

At first glance, Halliburton might seem like a bargain, but a deeper look suggests otherwise. The stock trades at a forward 12-month Price/Earnings multiple of 9.77X, which is higher than its three-year low of 8.10X. Given the company’s declining revenues, margin pressures, and slowing international growth, this premium seems difficult to justify.

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Not All Doom and Gloom: A Few Bright Spots

Despite the challenges, there are some areas where Halliburton is making progress. The company is investing in advanced drilling technology, artificial lift, and well intervention services, which are expected to add $2.5-$3 billion in annual revenues over the next three to five years.

Additionally, Zeus e-fleets and Octiv Auto Frac are gaining traction, with 50% of Zeus spreads now using Octiv. This has led to efficiency gains, with Coterra Energy reporting a 17% improvement in stage efficiency in the Permian Basin.

Halliburton also continues to generate solid free cash flow, posting $1.1 billion in the fourth quarter of 2024 and $2.6 billion for the full year. Capital discipline remains a priority, with capex limited to 6% of revenues. These factors provide some stability, but they are not enough to counterbalance the broader challenges facing the company.

Final Verdict: HAL Stock Is a ‘Strong Sell’

Halliburton’s heavy North American exposure, margin compression, and slowing international growth paint a challenging picture for the company in 2025. The Zacks Consensus Estimate for EPS has already been cut significantly, and the stock remains tied to a struggling industry.

While Halliburton continues to invest in growth areas, its core business faces significant near-term risks. At the current levels, the stock is not undervalued enough to justify the risks, and the premium relative to historical lows does not seem warranted. For these reasons, Halliburton remains a Zacks Rank #5 (Strong Sell) for now.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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