If there has ever been a boom-to-bust sector over the years, it has been energy. Despite all the past lessons learned, the same mistakes continue to be made when times are good: overproduction, too much leverage and too much capital expenditure spending.
A new research report from the highly respected Angie Sedita and her team at UBS points out that drilling has slowed to the lowest pace in years, and now is not the time to speculate on shaky companies. The stocks rated Buy at UBS are all the sector leaders.
Baker Hughes Inc. (NYSE: BHI) agreed almost a year ago to a friendly merger with fellow oil field giant Halliburton in a deal worth an astounding $34.6 billion. The deal raised big questions about whether the takeover could survive antitrust scrutiny, given the level of consolidation that it promises within the oil production services business.
The long wait to get the deal done with Halliburton may be starting to grind on some, but the merger agreement does allow the two companies to extend the deal into 2016. UBS still thinks that there is a 90% chance the deal is completed, and while Halliburton has maintained it will close this year, the analysts see a 2016 close more likely. They also think that additional assets could be sold by the company in an even greater effort to get approval.
Baker Hughes investors receive a 1.25% dividend. The UBS price target for the stock is $70. The Thomson/First Call consensus price target is at $73.50. The stock closed Wednesday at $51.56.