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What Are Baker Hughes’s 2018 Growth Prospects?

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Nov. 20 2020, Updated 3:45 p.m. ET

Baker Hughes’s stock price reaction

Baker Hughes, a GE company (BHGE), released its financial results for 4Q17 on January 24, 2018. Immediately following the earnings release, BHGE’s stock reacted negatively. On the day, it fell 5.7% from the previous day’s close to $33.78.

The SPDR S&P 500 ETF (SPY) remained nearly unchanged on January 24 compared to the previous day. The VanEck Vectors Oil Services ETF (OIH) fell 1.3% on the same day.

On January 19, Schlumberger (SLB) released its 4Q17 earnings. On the day of the release, SLB stock rose marginally compared to its previous day’s close.

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BHGE’s stock price movement compared to the industry

Since January 25, 2017, Baker Hughes’s stock price has fallen 24%. BHGE has underperformed the VanEck Vectors Oil Services ETF (OIH), which has generated a -17% return in the past year as of January 24, 2018. The Energy Select Sector SPDR ETF (XLE), the broader energy industry ETF, has risen ~4% since January 25, 2017.

Baker Hughes has significantly underperformed the SPDR S&P 500 ETF (SPY), which has risen 23% during the same period. Crude oil’s price has increased 24% in the past year. You can read more about crude oil in Market Realist’s Crude Oil Prices Could Hit $80 per Barrel in 2018. The Dow Jones Industrial Average (DJIA-INDEX) has risen 23% in the same period. The energy sector makes up 5.8% of the DJIA-INDEX.

Stock price movements of BHGE’s peers

Weatherford International (WFT), BHGE’s lower market cap peer, has fallen 21% since January 25, 2017. Halliburton’s (HAL) stock price has fallen 5% in the past year. CARBO Ceramics’ (CRR) stock price has fallen 16% during the same period. For more on HAL, read Market Realist’s What Worked for Halliburton in Its 4Q17 Earnings?

Baker Hughes’s 2018 growth prospects

BHGE’s management has expressed confidence about the company’s upstream capex growth in 2018. On BHGE’s 4Q17 earnings conference call, Lorenzo Simonelli, the company’s chair and CEO, commented, “Overall, we continue to see improvement in activity as early indications of customer capital spending in 2018 are encouraging, particularly for our shorter cycle businesses. International activity is stabilizing, and we are seeing signs of activity increase both in the volume and size of tenders for new work as customers feel more confident about their operating costs and commodity price stability. The subsea market continues to be challenging and activity remains low, with prices continuing to be pressured. We expect activity in the LNG space to increase as customers position to make new capacity available in 2022 and beyond.” Higher upstream capex can lead to higher revenue and margins for oilfield equipment and services (or OFS) providers.

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

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