Market Overview

The New Baker Hughes Is A Top Pick With Analysts


General Electric Company (NYSE: GE) hasn’t gotten much love from Wall Street in recent months, but its recent Baker Hughes (NYSE: BHGE) spin-off certainly is.

On Monday, Cowen analyst Marc Bianchi reiterated his positive outlook for the new Baker Hughes based on improving transparency and long-term growth opportunities at the company.

Baker Hughes recently took steps to improve transparency by speaking at an investor conference and releasing consolidated financial records dating back to 2015. The new numbers provide analysts and investors with a better idea of what to expect out of the combination of Baker Hughes' business with GE’s legacy oil & gas assets.

In addition to the combined financials, management made positive but vague guidance commentary suggesting the company is on track to deliver numbers that are “broadly” in-line with consensus estimates in the second half of 2017 and 2018.

“It was unclear whether this statement referred to EBITDA, EBIT, EPS or even revenue, but our sense is EBITDA since that was the basis for earlier guide,” Bianchi wrote Monday.

Consensus EBITDA guidance for Baker Hughes currently stands at $1.6 billion for the second half fo 2017 and $3.8 billion for full-year 2018.

In addition to the guidance discussion, management also mentioned internal discussions related to capital return plans. The company plans to return between 40 and 50 percent of net income to shareholders in time. Bianchi believes Baker Hughes has a strong enough balance sheet to provide shareholders with steady dividend growth over time and/or step in with a large special dividend payout at some point in the future.

“As transparency improves over the coming months we expect BHGE close the valuation gap with peers and potentially earn a premium over time,” he wrote.

Cowen maintains an Outperform rating and $50 price target for Baker Hughes.

Related Link: JPMorgan Says GE's Outlook Is 'Worse Than We Think'

Disclosure: the author is long BHGE.

Latest Ratings for BHGE

Oct 2019CitigroupMaintainsBuy
Oct 2019Morgan StanleyMaintainsOverweight
Sep 2019Wells FargoMaintainsOutperform

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