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How Sell-Side Analysts Are Reacting To The GE-Baker Hughes Deal

Wall Street's Sell-Side Reacts To GE-Baker Hughes Deal|NYSE: GE NYSE: BHI

Following continued chatter regarding the General Electric Company GE 0.76%Baker Hughes Incorporated BHI 0.11% deal, here is a compilation of sell-side analysts' takes on the soon-to-be spun off combined unit's separate publicly traded energy services company.

Baker Hughes' Competitive Edge

Argus sees competitive edge and a rising price target for Baker Hughes.

Argus believes the new company can compete more effectively with Halliburton Company HAL 0.5% and Schlumberger Limited.SLB 0.6%, with GE's digital technology complementing Baker Hughes' service and equipment offerings. The firm is also convinced that the proposed deal could scale regulatory hurdle as opposed to the Baker Hughes-Halliburton deal that fell through.

Argus also narrowed its loss per share estimate for Baker Hughes, reflecting the third-quarter results, and raised its 2017 bottom-line estimates. The firm reaffirmed its Buy rating on the shares of the company and raised its price target by $9 to $65.

5-Point Short Story

Bernstein encapsulated the deal through a five-point "short story."

  • Highly complementary businesses, allowing the combined company better compete with Schlumberger/Halliburton.
  • The $1.6 billion operational cost and revenue synergies, though aggressive, is not an impossibility.
  • GE shareholders stand to gain through earlier upside to an upturn in the O&G cycle with limited cash outlay.
  • Relative valuation of GE is positive.
  • Cements yet another pillar of the go-forward GE portfolio.
  • Bernstein rates GE a Market Perform, with a $33 price target.

    Baker's Dozen

    RBC is of the opinion that the increased scale and stability of the new Baker Hughes afforded through the transaction increases its competitive position and further aligns it with its vision of shifting its focus to products and technology and away from fully integrated services.

    RBC rates Baker Hughes an Outperform with a $61 price target.

    GE-Baker Hughes Deal Engenders Digital Industrial Company

    Credit Suisse sees a digital industrial company emerging in the oilfield services space in the wake of the proposal of marriage between GE's Oil & Gas business and Baker Hughes. The firm believes cost synergies and oil price outlook assumptions are very conservative.

    Credit Suisse has a $61 price target for Baker Hughes compared to its $66 preliminary valuation for the company in the deal.

    However, some analysts didn't exactly go overboard over the deal and offered muted opinion.

    Deal's Economics Disappoints

    Though convinced with the industrial logic of the transaction, Barclays believes the negative reaction to Baker Hughes stock price on Monday was due to Baker Hughes giving up too much economics. Given the integration and execution risk, the firm believes the new company's 2020 EBITDA guidance isn't compelling.

    U.S. Onshore Markets: Long-Cycle Exposure At Near Term's Expense

    CLSA does not see the deal as a consolidation exercise but penetration of existing markets with more touch points, content and pull through. However, the firm sees more long-cycle exposure at the expense of some of the near-term momentum of the U.S. onshore markets, dissuading some near-term investors. That said, the firm believes the deal has facilitated the creation of an entity with a more compelling opportunity set managed with increased discipline and process.

    At last check, GE shares were down 1.15 percent at $28.76, while Baker Hughes was down 0.87 percent at $54.92.

    Nov 2016Atlantic EquitiesUpgradesUnderweightNeutral
    Nov 2016Raymond JamesDowngradesStrong BuyOutperform
    Oct 2016Goldman SachsTerminatesNeutral

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