Will Baker Hughes (BHGE) be Better Off if GE Lowers Stake?

Baker Hughes, a GE company BHGE is once again likely to be an independent entity as its majority stock owner, General Electric Company GE, is planning to further lower its interests in the oilfield service player.

In 2017, the struggling oil and gas business of General Electric was merged with Baker Hughes to create a new public firm, wherein General Electric had 62.5% ownership stake. However, the merger was not appreciated by the market as the new entity — Baker Hughes, a GE company — declined more than 55% since the merger deal was signed in October 2016.

Eventually, General Electric has been planning to exit the merger so that it could allocate the proceeds to lower its debt burden. In 2018, roughly $4 billion of Baker Hughes’ shares were sold by General Electric to bring down its ownership to 50.2%.

In its latest release, Baker Hughes announced that the U.S. industrial conglomerate is planning to further lower its stake to less than 50%. In a secondary offering, General Electric will be selling 105 million shares of Baker Hughes’ Class A common stock. The transaction also includes a $250-million private deal, wherein Baker Hughes will repurchase its Class B common stock from General Electric. Notably, with the sale of shares of Baker Hughes, General Electric is likely to receive $3 billion in cash.

Investors should know that Harry Markopolos, an accounting expert, recently delivered a report that accused General Electric of incorporating cash and earnings of Baker Hughes in its own financial statements to hide losses. Hence, many analysts expect Baker Hughes to be better off if it operates as an independent company.    

Stocks to Consider

Presently, Baker Hughes carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space include National Oilwell Varco Inc. NOV and World Fuel Services Corporation INT, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Oilwell is likely to see earnings growth of 75% in 2019.

World Fuel’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average positive earnings surprise being 16.4%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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