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Why Baker Hughes’s Stock Price Looks Bearish

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Baker Hughes versus peers and industry

On August 11, 2017, Baker Hughes, a GE Company (BHGE), was trading at $34.29 and has fallen 24% YTD (year-to-date).

BHGE was formed by combining the businesses of Baker Hughes and GE’s (GE) Oil and Gas business. Baker Hughes is an OFS (oilfield equipment and services) company, while GE’s oil and gas business provides drilling, completion, production, and oilfield operations, as well as the transportation of liquefied natural gas.

TechnipFMC (FTI), BHGE’s OFS industry peer, has fallen 37% YTD, while the VanEck Vectors Oil Services ETF (OIH) has fallen 34% YTD, and National Oilwell Varco (NOV) has fallen 21% YTD.

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What does BHGE’s stock price movement tell us?

In the past year, Baker Hughes’s stock price rose briefly from September 2016 to December 2016. Since then, BHGE’s stock price has been going downhill, reflecting the weakness in crude oil prices.

Although crude oil prices have been gathering some steam since late June 2017, BHGE’s stock price has not shown any recovery signs. BHGE’s revenues have not moved much in the past two quarters as of 2Q17, and it has continued to report net losses.

BHGE has also been cash flow negative for the past two quarters. This explains why crude oil prices have outperformed BHGE’s stock price recently. For more on energy prices, check out Market Realist’s series Will Global Oil Demand Overshadow Ample Supplies?

Baker Hughes’s moving averages

On August 11, 2017, Baker Hughes’s stock price was trading at a 7.6% discount to its 50-day MA (moving average). It was also trading 16% below its 200-day moving average. These MAs exhibit a smoother trend in the stock’s price movement.

BHGE’s long-term MA has been running above its stock price since mid-May 2017, exhibiting longer-term weakness in BHGE’s stock price. BHGE’s short-term MA moved above its stock price in January 2017, which indicates short-term resistance to BHGE’s stock price.

In this series, we’ll discuss industry indicators, Baker Hughes’s top-line and bottom-line growth, and its balance sheet. We’ll start with the synergies arising from the merger between Baker Hughes and GE’s oil and gas business.

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