Title: Halliburton's "Shocking" Rebound? Don't Confuse Optimism with Reality
Halliburton (HAL) is currently trading near $27 a share, a figure that's essentially flat for 2025 while the broader market has jumped 16.5%. That underperformance has caught the attention of Wall Street analysts, with several firms recently upgrading the oil services giant. The upgrades are based on the idea that Halliburton's struggles represent a cyclical bottom, not a structural decline. Rothschild & Co Redburn initiated coverage with a Buy rating and a $35 price target, implying a potential 36% upside. TD Cowen is even more aggressive, with a $38 price target. But should investors buy the hype? A closer look at Halliburton's history suggests caution.
A History of Profiting From War
Halliburton's close ties to government contracts go back a long way—further than most analysts seem to realize. The company's trajectory shifted dramatically in the late 1930s thanks to Lyndon B. Johnson. LBJ, then a Congressman, secured federal funding for the Marshall Ford Dam, a project awarded to Brown & Root (which later merged with Halliburton). Thomas "Tommy the Cork" Corcoran observed that "LBJ’s whole world was built on that dam.” It also set Brown & Root on the path to becoming a favored government contractor.
This pattern continued through World War II and the Vietnam War. During the latter, Halliburton secured billions in no-bid, cost-plus contracts, a deal where the government simply pays every bill the contractor submits. A 1967 GAO report revealed that Halliburton “could not account for the whereabouts of approximately $120 million worth of materials which had been shipped from Vietnam to the United States.” Despite this, the report was buried, and Halliburton's revenues nearly tripled.
Fast forward to the Iraq War, and the story repeats itself. Halliburton secured billions in contracts, often under questionable circumstances. A leaked audit revealed a $27.5 million charge for shipping cooking gas and heating fuel that the Pentagon auditors valued at $82,000. Congressman Henry Waxman charged that the Pentagon withheld damaging reports on Halliburton at the behest of Vice President Dick Cheney, the former CEO of Halliburton. Former Vice President Dick Cheney had Houston ties as CEO of Halliburton
Even when Halliburton’s overbilling was exposed, the consequences were minimal. The Pentagon rejected 12 separate requests from Congressman Waxman. Halliburton was even awarded a new $5 billion contract. Cost, it seems, is never the problem; public exposure is.
This isn't just a matter of historical interest. Halliburton's business model is deeply intertwined with government contracts, particularly those related to military operations and infrastructure projects in conflict zones. Any analysis of Halliburton's future prospects needs to account for this reliance.
Questionable Accounting and Dubious Deals
The rosy picture painted by analysts also ignores some of Halliburton's less savory business practices. Under Dick Cheney's leadership, Halliburton acquired Dresser Industries for $7.7 billion, a price that was at least 16% more than the company's actual value. This acquisition saddled Halliburton with massive asbestos liabilities, eventually totaling around $5.5 billion.
Cheney also approved the creation of offshore shell corporations to exploit Enron-style accounting practices. The SEC later fined Halliburton $7.5 million for these practices. These subsidiaries were also used to circumvent government prohibitions against doing business with countries like Libya and Iran.
Halliburton was fined $3.8 million for violating the trade embargo with Libya. A Department of Justice investigation was launched into Halliburton’s operations in Iran, where it had been doing business since 1997 through a subsidiary set up in the Cayman Islands.
I've looked at hundreds of these filings, and the sheer number of legal and ethical violations associated with Halliburton is striking. It raises serious questions about the company's commitment to ethical business practices.
A Glimmer of Hope?
Analysts point to Halliburton's strategic diversification into growth markets, such as supplying on-site natural gas power for AI data centers. This venture recently secured a massive 2.3 gigawatt project to supply Oracle's upcoming AI cloud facilities. The partnership represents an entirely new market for Halliburton, leveraging existing expertise in turbines and power systems.
But let's be clear: these new ventures are still a small part of Halliburton's overall business. The company's core remains tied to the oil and gas industry, an industry that is facing increasing pressure from environmental regulations and the rise of renewable energy sources. Global upstream capital expenditures are forecast to grow approximately 3% annually from 2025 to 2030. That's hardly a booming market.
Halliburton's third-quarter results exceeded expectations, with $5.6 billion in revenue. However, a one-time $478 million charge resulted in minimal GAAP net income of $18 million. Adjusted earnings were $496 million for the quarter. While the company maintained a 13% adjusted operating margin, this was achieved through aggressive cost-cutting measures, including idling underutilized equipment and streamlining organizational structure.
Don't Bet on Miracles
Halliburton's history is one of government connections, questionable accounting, and a reliance on conflict zones for profit. While the company is attempting to diversify into new markets, its core business remains tied to the oil and gas industry. The recent analyst upgrades may be a sign of optimism, but they don't change the fundamental realities of Halliburton's business model. Investors should proceed with caution and not confuse optimism with reality.
Is This Really a "Value" Play?
Michael Burry's recent bullish bet on Halliburton might be interpreted as a contrarian indicator—a sign that the stock is undervalued and poised for a rebound. But Burry's track record, while impressive, isn't infallible. And the risks associated with Halliburton, particularly its reliance on government contracts and its history of ethical lapses, are substantial. A "shocking" rebound might be in the cards, but I'm not holding my breath. Halliburton is a reminder that a company's past is often a prologue to its future.
