Baker Hughes, A Compelling Stock For The Conservative Investor

Baker Hughes, a GE company Class ABHGEAngie SeditaBaker Hughes' stock

BHGE's business structure today is less exposed to oil services at 60 percent of total revenue, with the remaining 30 percent coming from midstream and 10 percent from downstream, Sedita said in the initiation note. The company is also more internationally exposed at 70 percent of total revenue and 30 percent from offshore.

Related Links: Why You Should Eschew The New Baker Hughes; Bank Of America Rates Stock Underperform The New Baker Hughes Is A Top Pick With Analysts ______ Image Credit: By Gerd Fahrenhorst (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

The company's balance sheet is also "strong" with $4 billion in cash with a total debt/EBITDA ratio of 1.2x in 2018 and is expected to generate a "significant" free cash flow yield of 5 percent. The strong financial positioning better allows the company to return a 17 cents/share quarterly dividend, which could be expanded to include a $1 billion share buyback program.

Finally, BHGE's enterprise value stands at around $40 billion which makes it a large-cap player that is roughly the same size of Halliburton Company HAL but less than half of Schlumberger Limited. SLB. However, when singling out the oil service portion of BHGE, revenues for the combined company are 44 percent lower than Halliburton and 62 percent lower than Schlumberger.

Bottom line, BHGE's more diverse business offers conservative investors a compelling investment case that could generate stable earnings but does offer less revenue and earnings upside in a recovery.