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Comparing Net Debt for BHGE and NOV Post-1Q18

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Series overview

In this series, we’ll compare Baker Hughes, a GE company (BHGE), and National Oilwell Varco (NOV), two of the top market cap OFS (oilfield equipment and services) companies based on their balance sheet strength, market indicators, and relative valuation multiples. We’ll start our discussion by comparing these companies’ net debts in 1Q18.

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Comparing debt profiles

Net debt is total debt less cash, cash equivalents, and short-term marketable securities. In this article, we’ll be analyzing net debt for BHGE and NOV as of March 31. Read more about Baker Hughes in Market Realist’s Analyzing Baker Hughes’s Value Drivers in 1Q18.

BHGE’s 1Q18 net debt growth was high

As of March 31, Baker Hughes’s total borrowing was significantly higher than it was a year ago. A year ago, before the Baker Hughes–GE oil and gas business merger, BHGE’s cash and marketable securities exceeded its total debt. Its net debt was negative in 1Q17. Following the merger, Baker Hughes incurred substantial debt, which amounted to ~$7.5 billion as of March 31, 2018.

Although its cash and marketable securities increased 33% in 1Q18 compared to a year earlier, BHGE couldn’t offset the rise in its total debt. As a result, BHGE’s net debt was $1.8 billion as of March 31.

BHGE makes up 3.4% of the SPDR S&P Oil & Gas Equipment & Services ETF (XES). XES provides exposure to the oil and gas equipment and services industry. XES has risen 1% in the past year compared to the 14% dip in BHGE during the same period.

Analyzing NOV’s net debt in 1Q18

In 1Q18, National Oilwell Varco’s net debt decreased compared to 1Q17. In 1Q18, NOV’s total debt decreased 15.6% compared to a year earlier, while its cash and marketable securities decreased 20% during the same period. In effect, its net debt decreased 11% to $1.5 billion as of March 31, 2018, compared to $1.7 billion as of March 31, 2017.

In the next article, we’ll look at the dividend growth and dividend yields of our selected set of OFS companies.

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