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General Electric's Capital and Baker Hughes Revamp Portfolio

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General Electric's Capital and Baker Hughes Revamp Portfolio

General Electric's (GE) unit GE Capital to dispose of $1 billion worth equity investments and Baker Hughes to acquire 5% stake in ADNOC Drilling. These deals are likely to act as tailwinds.

Subsidiaries of General Electric Company GE has communicated that those are planning to reshape business portfolios. GE Capital has agreed to sell roughly $1 billion worth of equity investments of its Energy Financial Services business while Baker Hughes, a GE company BHGE has agreed on purchasing 5% stake in a subsidiary of Abu Dhabi National Oil Company.

We believe that the aforementioned news will play a vital role in building positive sentiments for General Electric. It’s worth mentioning here that the company’s shares have gained roughly 3.3%, closing the trading session at $13.61.

Details of GE Capital’s Transaction

As noted, roughly 20 investments in midstream energy infrastructure, renewable energy and contracted natural gas fired generation assets will be purchased by funds managed by associates of Apollo Global Management, LLC APO — Apollo Funds.

Financial terms of this deal have not been disclosed.

This transaction is in sync with GE Capital’s strategy of working toward enhancing General Electric’s value. Further, this will enable GE Capital to concentrate on serving customers in renewable energy and power industries.

Currently subject to the fulfillment of customary closing conditions, the equity investment sale will likely conclude in the fourth quarter of this year.

Details of Baker Hughes’ Deal

Per the agreement signed, Baker Hughes will purchase 5% stake in ADNOC Drilling — Abu Dhabi National Oil Company’s subsidiary, specializing in providing drilling and well construction services. The deal value has been fixed at $550 million.

The acquisition of stake will be a win-win situation for both ADNOC Drilling and Baker Hughes.

ADNOC Drilling’s growth opportunities will expand, with the addition of Baker Hughes’ technological expertise and specialized equipment related to drilling. On the other hand, Baker Hughes will leverage benefits from expanded business opportunities of ADNOC Drilling while continuing to serve its existing customer base in the Middle East. Moreover, Baker Hughes anticipates earnings per share accretion in the initial year of the deal closure.

Currently subject to the receipt of regulatory approvals and fulfillment of customary closing conditions, the acquisition of stake is anticipated to be completed in fourth-quarter 2018.

General Electric’s Plan Related to Baker Hughes and GE Capital

In June 2018, General Electric announced its plans to restructure its business portfolio in a bid to become a high-tech industrial company — focused on Aviation, Power and Renewable Energy.

Per the plan, General Electric decided to dispose of its 62.5% interest stake in Baker Hughes. The stake disposition, to be carried out in the next two to three years, is going to mark the exit of the company from oil and gas businesses. Moreover, the company reiterated its intention of shrinking GE Capital business, aiming $25-billion sales in finance assets (energy and industrial) by 2020 and assuming capital contribution of $3 billion in 2019. Moreover, it is working on lowering its exposure to the insurance business.

Zacks Rank and Stock to Consider

General Electric currently has a market capitalization of $118.3 billion and carries a Zacks Rank #4 (Sell). This conglomerate’s share price has declined 4% in the past three months against 5.2% growth recorded by the industry.

On the other hand, conglomerate Macquarie Infrastructure Company MIC currently sports a Zacks Rank #1 (Strong Buy). In the last 60 days, earnings estimates on the stock remained stable for 2018 while increased for 2019. Further, the company delivered a positive average earnings surprise of 8.05% for the last four quarters.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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