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Barclays Bullish On The 'New' Baker Hughes, Initiates At Overweight

Barclays Bullish On The 'New' Baker Hughes, Initiates At Overweight

Barclays initiated coverage of Baker Hughes, a GE company Class A (NYSE: BHGE), with an Overweight rating and a $41 price target. The firm believes the company will be given some early leeway to justify a multiple relatively in line with Halliburton Company (NYSE: HAL) and Schlumberger Limited. (NYSE: SLB), with the opportunity to earn a premium down the road.

The new Baker Hughes is formed as a result of the merger between Baker Hughes and General Electric Company (NYSE: GE)'s oil & gas business.

Analyst David Anderson indicated that energy and institutional investors are skeptics, as both legacy companies have mixed execution. While providing synergies, the analyst believes the merger serves to address some issues.

See also: Imperial Initiates Coverage Of Oil & Oilfield Services Companies

Anderson noted that Baker Hughes can leverage GE's manufacturing acumen, global footprint and digital capabilities, while the legacy GE oil and gas business gains the needed scale by filling numerous portfolio gaps. That said, the analyst sees Baker Hughes as a "show me story," with concerns about cash conversion and capital allocation, among others.

Barclays said the bar remains quite low at least for now, with the 2018 EBITDA estimate well below the guidance.

"While not immune to offshore and international headwinds, the new Baker Hughes is differentiated from its Large Cap OFS peers with a defensive global full-stream energy portfolio better suited for lower-for-longer oil prices," the firm added.

Barclays believes the new Baker Hughes' turbomachinery, downstream, artificial lift and production chemical businesses would help to dampen earnings cyclicality because of their exposure to global LNG, U.S. production, midstream and downstream end markets. The firm is of the view that the company's after market opportunity, access to GE Capital and the ability to tap GE's Predix uniquely position the company.

At last check, the new Baker Hughes shares were up 2.12 percent at $34.22.

Latest Ratings for BHGE

Oct 2019MaintainsBuy
Oct 2019MaintainsOverweight
Sep 2019MaintainsOutperform

View More Analyst Ratings for BHGE
View the Latest Analyst Ratings

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