A dying company
Time To Throw In The Towel On Baker Hughes
Nov. 25, 2018 11:02 AM•BHGE
Summary
BHGE's Q3 revenue was up 2% Q/Q.
If North America stalls, it could stymie BHGE's short cycle businesses.
If oil prices continue to fall, then subsea may not be much of a catalyst.
GE's orderly exit of its equity stake could pressure the stock.
Sell BHGE.
Baker Hughes CEO Lorenzo Simonelli. Source: Houston Chronicle
I have been predicting a slowdown in the global economy for quite some time. Industrial production for October rose just 0.1 percent and now Brent oil prices are hovering around $60. Concerns linger that an oil glut exists and demand could wane if the economy turns down. Recessionary pressures could hurt oil services firms like Baker Hughes (BHGE). The stock is down over 25% Y/Y and could fall further.
The U.S. rig count fell by 3 to 1,079 for the week ended November 21st; the rig count was still up 17% Y/Y. Oil services firms with a sizable presence in North America have been looked upon favorably given the white hot activity in the region. That may no longer be the case. On its Q3 earnings call, Halliburton's (HAL) management intimated budget exhaustion could stymie activity in the region in the second half of 2018.
Baker Hughes's Q3 2018 revenue of $5.7 billion was up 2% sequentially. Revenue from short cycle businesses - Oilfield Services and Digital Solutions - rose a combined 3% Q/Q. This lagged the 8% growth demonstrated in Q2, and was to be expected given the warning from Halliburton.
Schlumberger's (SLB) Q3 revenue from North America was up 2% Q/Q, while Halliburton's declined 2%. Baker Hughes's performance in the region was slightly better than the competition's. It currently gets about 64% of its total revenue from short cycle businesses. If North America land drilling continues to stall, then it could stymie the company's total revenue growth going forward.
Will Long Cycle Businesses Sizzle?
Baker Hughes's merger with GE (GE) Oil these segments represented 36% of total revenue.