Shares of Baker Hughes, a GE Company, (NYSE:BHGE) tumbled 14.2% in October. While some tepid commentary from analysts initially weighed on the stock, the primary fuel driving the decline was the company's weak third quarter.
Analysts haven't been all that bullish on Baker Hughes' prospects since it combined with GE's (NYSE:GE) oil and gas business earlier this year. That didn't change in October. Deutsche Bank, for example, initiated coverage on 20 oil service stocks last month, but rated Baker Hughes a hold, choosing rival Halliburton (NYSE:HAL) and two others as its best long-term ideas. Meanwhile, UBS started Baker Hughes with a neutral rating, due in part because it has less exposure to the faster-growing U.S. land market driven by shale drilling now that it's part of GE (which is where Halliburton excels). Finally, J.P. Morgan thinks that GE might end up unloading its stake in Baker Hughes to help turn the industrial giant's fortunes around.
However, the biggest hit to Baker Hughes stock came toward the end of the month when it reported third-quarter results. The oil service and equipment giant posted $0.05 per share in earnings, which missed the consensus estimate by $0.07 per share while revenue came in flat versus the prior year. Contrast that with Halliburton, which reported strong results: Revenue jumped 42% year over year while earnings came in $0.05 per share ahead of expectations.
In addition to those lackluster results, Baker Hughes warned that slower spending in North America and continued weakness offshore could weigh on fourth-quarter results. Furthermore, CEO Lorenzo Simonelli described the current business environment as "challenging." That warning matched what oilfield service leader Schlumberger reported, with it also suggesting that fourth-quarter earnings might miss analysts' expectations. However, Schlumberger's CEO thought that the industry's current activity drop could eventually boost oil prices, which would be better for business. Halliburton, likewise, cautioned that growth in its drilling and evaluation business could slow from the brisk growth rate it reported in the third quarter.
Baker Hughes' stock has gotten off to a rough start as part of GE. That said, the company recently made a move to take advantage of its sell-off by authorizing a $3 billion buyback program, which could enable it to retire as much as 8% of its outstanding shares. Those cash returns, when combined with what should be a better oil market next year, could make investors quickly forget about last month's drop.