Jefferies Downgrades Baker Hughes (BHI) Two-Notches to Underperform
Jefferies downgraded Baker Hughes (NYSE: BHI) from Buy to Underperform with a price target of $34.00, saying the DoJ lawsuit against the Halliburton (NYSE: HAL) merger is "daunting." The analyst thinks an aggressive share buyback or a quick acquisition by another party is unlikely.
Analyst Brad Handler commented, "We believe BHI faces considerable challenges to address the current landscape as well as, more fundamentally, the infrastructure investment requirements associated with global logistics/service to be competitive over the long term. The break-up fee should be more than enough to fund the required investment in our view, but whether the will is there to spend what is required is less clear. We maintain our earlier-published stand-alone PT of $34, which is consistent with a lower multiple on Normalized earnings than peers given such investment needs and our view of recovery-execution risk (given our DCF methodology our model actually has higher proportional capex for BHI than for HAL in the normalized year). We also think it is inappropriate to anchor our investment thesis on a "white knight" acquirer for BHI — it is plausible that such a buyer emerges, but buying all of BHI ($17B EV net of after-tax breakup fee) is an order-of-magnitude larger commitment than "cherry picking" $4-5B of assets and thus is not a decision we expect to come quickly."
The firm maintained a Buy rating on Halliburton and upped its price target to $43.
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Shares of Baker Hughes closed at $41.93 yesterday.