Oil-services firm  Halliburton (HAL) reported better-than-expected results for the third quarter Tuesday morning, bolstering our long-term investment case in the energy stock.

• Total revenue climbed by 39% year-over-year to $5.36 billion, beating analysts’ forecasts of $5.34 billion in sales.

• Earnings-per-share soared by 131% compared with the same period last year to 60 cents a share, ahead of a consensus forecast of 56 cents a share.

Key company metrics

• Sales in completion and production: $3.14 billion, a 47% year-on-year increase and up 8% sequentially, exceeding analysts’ expectations of $3.06 billion.

• Sales in drilling and evaluation: $2.22 billion, up 29% year-over-year and up 3% sequentially, short of the consensus sales estimate of $2.25 billion.

• Sales in North America: $2.6 billion, up 63% year-on-year and 9% quarter-over-quarter.

• Sales internationally: $2.7 billion, up 21% year-on-year and 3% sequentially.

• Total operating income: $846 million, ahead of the consensus estimate of $799 million.

• Operating margin: 16%, an increase of 393 basis points year-over-year.

• Operating income for completion and production: $583 million, up more than 80% year-over-year and ahead of a consensus estimate of $555 million, with the operating margin expanding 350 basis points year-on-year and 150 basis points sequentially.

• Operating income for drilling and evaluation: $325 million, a nearly 75% jump compared to the same period last year, beating analysts’ estimates of $304 million, with the operating margin expanding 380 basis points year-over-year and 140 basis points sequentially.

• Free cash flow: $543 million, short of consensus expectations for $583 million.

Outlook

Halliburton’s management on Tuesday called their outlook “strong” and said oil-and-gas supply would remain “tight for the foreseeable future.” The management team cited “historically low inventory levels, production levels well below expectations and temporary actions such as the largest ever [strategic petroleum reserve] release”. At the same time, demand is resilient and should remain so, according to management.

Despite volatility in oil prices, management remains confident that the strength seen in recent quarters will endure as “only multiple years of increased investment in existing and new sources of production will solve the short supply.”

In North America, management expects fourth-quarter revenue in its completion and production division to increase by low-to-mid-single digits, with about 50 to 100 basis points of margin improvement. Sales from drilling and evaluation are expected to increase by low-to-mid-single digits with margin improvement of 75 to 125 basis points.

At the same time, given the company’s strong balance sheet and positive outlook, management said they’re able to “have greater flexibility to increase the cash we return to shareholders” through dividends and/or share buybacks.

The management team highlighted that with $2.4 billion of debt retired since 2020 (including $600 million retired in the third quarter) Halliburton is “quickly approaching” their near-term average debt target of two times gross debt to EBITDA, which stands for earnings before interest, taxes, depreciation and amortization.

Bottom line

Halliburton served up another robust quarter on the back of increased demand in North America and internationally. With strong oil demand expected to persist and supplies tight due to years of underinvestment, Halliburton should be able to further expand profit margins and increase selling prices.

We expect Wall Street’s earnings estimates to be revised higher on the back of this print and, as a result, we think shares have further upside. We also see the potential for Halliburton to raise its dividend in the future, should the board approve it, thanks to a strong balance sheet and supportive operating environment.