NEW YORK (TheStreet) -- Shares of Baker Hughes (BHI) are up 4.85% to $61.60 in pre-market trade after the oilfield services company confirmed that it has engaged in preliminary discussions with Halliburton Co. (HAL) regarding a potential business combination transaction.
These discussions may or may not lead to any transaction. Baker Hughes does not intend to comment further on market speculation or disclose any developments unless and until it otherwise deems further disclosure is appropriate or required, the company said in a statement
By eliminating a competitor, Halliburton, already the world's second-biggest provider of oilfield services, would gain market clout that would help insulate it from a sustained market decline. A combination of Halliburton with number three Baker Hughes would be a little more than half the size of larger rival Schlumberger (SLB) , according to Bloomberg.
"We rate BAKER HUGHES INC (BHI) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 13.8%. Since the same quarter one year prior, revenues slightly increased by 8.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- BHI's debt-to-equity ratio is very low at 0.24 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.36, which illustrates the ability to avoid short-term cash problems.
- BAKER HUGHES INC has improved earnings per share by 11.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, BAKER HUGHES INC reported lower earnings of $2.47 versus $2.98 in the prior year. This year, the market expects an improvement in earnings ($3.97 versus $2.47).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Energy Equipment & Services industry average. The net income increased by 10.0% when compared to the same quarter one year prior, going from $341.00 million to $375.00 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to the other companies in the Energy Equipment & Services industry and the overall market, BAKER HUGHES INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full analysis from the report here: BHI Ratings Report
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