Stephens: Baker Hughes Near-Term Could Be 'Sloppy'

Baker Hughes Incorporated BHI reported its 1Q results, underperforming its peers.

Stephens’ Matthew Marietta downgraded the rating on the company from Overweight to Equal-Weight, while lowering the price target from $64 to $39.

“While LT potential for stand-alone success remains, we think the last ~1.5 years of uncertainty and distraction will take time to clean up as the potential trough materializes,” Marietta mentioned.

1Q Underperformance

Baker Hughes reported 21 percent quarter on quarter revenue declines for 1Q, as compared to the 16 percent decline reported by Schlumberger Limited. SLB and the 17 percent decline posted by Halliburton Company HAL.

Baker Hughes also meaningfully underperformed in terms of operating margins, which came in at 9.2 percent.

According to the Stephens report, “BHI expects NAM rig count to decline (30%) q/q in 2Q and while rig count could stabilize around mid-year, activity is not expected to increase meaningfully in 2016; Int'l rig count is expected to decline steadily through 2016.”

Merger Outlook

Given the delay of Halliburton’s call to after the April 30 deadline, and “reading into language in both HAL and BHI's reports coupled with a fairly ominous report issued by the DOJ, we now see significant risk to deal closure which marks a full shift in our prior position,” Marietta stated.

The revenue, EBITDA and adjusted EPS estimates for 2Q16, 2016 and 2017 have been lowered.