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What Challenges Does Baker Hughes Face?

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Nov. 20 2020, Updated 3:10 p.m. ET

Baker Hughes’s stock price reaction

Baker Hughes (BHI) released its financial information for 1Q17 on April 25, 2017. Its stock reacted positively to the earnings release with a rise of 1.1% to $59.29 from the previous day’s close.

Halliburton (HAL), BHI’s larger market cap peer in the oilfield equipment & services (or OFS) industry, was down 1% following the release of its financial information for 1Q17 on April 24. Schlumberger’s (SLB) stock was down ~2% on the day its 1Q17 earnings were released. Read Schlumberger’s 1Q17 Earnings Met Estimates for more information.

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BHI’s stock price movement compared to industry

As noted in the graph above, in the past one year, Baker Hughes’s stock rose 29%. It has hugely outperformed the VanEck Vectors Oil Services ETF (OIH), which has produced ~1% returns. The Energy Select Sector SPDR ETF (XLE), the broader energy industry ETF, has produced 2% returns. Baker Hughes has also outperformed the SPDR S&P 500 ETF (SPY), which has generated 14% returns during the same period. BHI makes up 0.13% of SPY. BHI has even outperformed the West Texas Intermediate (or WTI) crude oil price, which has recovered 13% in the past one year. The Dow Jones Industrial Average (DJIA-INDEX) rose 17% in the past one year. The energy sector makes up 6.2% of the DJIA-INDEX.

Baker Hughes’s challenges in 2017

In 2017, BHI’s management expects North American upstream activity to improve and weakness in the international and offshore markets to continue. In the 1Q17 earnings press release, Martin Craighead, BHI’s chair and CEO, commented, “Looking forward to the rest of the year, we believe that the North America onshore market will continue to grow and service capacity will continue to be absorbed. For international onshore markets, activity has bottomed and we expect it will remain stable, with a few pockets of modest growth. And, while we expect there to be headwinds offshore throughout the rest of 2017, we are winning in the right places, as evidenced by our recent tender awards.”

What could change the game for Baker Hughes?

Baker Hughes’ outlook could change if its partnership with GE (GE) goes through successfully. BHI’s management now expects the transaction to complete in mid-2017. Read Market Realist’s Baker Hughes-GE Partnership: DOJ Requests More Information. On October 31, 2016, GE disclosed that it would combine its oil and gas business with Baker Hughes to form a partnership. Read more on this in Market Realist’s Can the BHI–GE Partnership Benefit from Global Growth?

Next, we’ll discuss Wall Street analysts’ targets for Baker Hughes.

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