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   Gold/Mining/EnergyBaker Hughes


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From: Dennis Roth7/30/2007 5:38:51 PM
   of 18
 
Cost efficiencies to help drive margins - still Buy - Goldman Sachs - July 30, 2007

What's changed

Reported EPS of $1.09 came in within the pre-announced range of $1.07-$1.09 and $0.01 above our estimate of $1.08. We fine tuned our 2007 EPS estimates by $0.01 to $4.78 from $4.77, due to 2Q07 outperformance relative to our estimate. Our 2008/2009 EPS estimates are unchanged. Management reiterated guidance of 19%-21% international revenue growth for 2007.

Implications

We reiterate our Buy rating for Baker Hughes shares. Following the recent sell-off, we believe that valuation is attractive relative to the peers. We see upside potential in margins, especially at INTEQ, Fluids, Atlas, and Baker Oil Tools. We believe that Fluids division will benefit somewhat from improved mix towards offshore in the coming quarters and INTEQ's margins should improve as the company comes-up the learning curve on new products and overcomes initial high repair and maintenance costs. Furthermore, we are looking forward to higher margin sales in Canada as the rig count improves. We remain concerned about potential pricing erosion in North America in the bits and fluids divisions, but believe that Baker Hughes will be able to adjust its costs structure to minimize the margin impact and preserve share.

Valuation

Baker Hughes is trading at a 2008 EV-DACF/P-E of 10.0x/13.6x, versus 10.4x/12.6x for Halliburton and 14.3x/18.8x for Schlumberger. We fine tuned our 12-month price target to $99 from $100, due to slightly higher net debt.

Key risks

Key risks to our thesis include:
(1) A U.S./Global recession could result in weaker commodity prices and further E&P capex cuts; and
(2) Weakness in natural gas prices could lead to further E&P capex cuts in North America.

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From: Dennis Roth10/29/2007 8:28:24 AM
   of 18
 
In-line 3Q results, but margin guidance disappointing; Still Buy - Goldman Sachs - October 29, 2007

What's changed

We lowered our 2007/2008/2009 EPS for BHI to $4.76, $5.89, and $7.01 from $4.78/$6.15/$7.30, respectively. Our revisions reflect BHI’s more conservative outlook on incremental operating margins (~25%). Our 12-month price target is now $4 lower at $103 (13.0X 2008 EV/DACF).

Implications

There is no change to our Buy-rating on BHI shares, despite the lower-than-expected outlook on incremental margins. Our Buy rating on BHI has been based on aggressive penetration into international markets, improved stability in North America, and regaining of domestic market share. These investment themes have not changed, however the expected EPS benefits associated with them appear to be pushed out further than we expected. Valuation is still inexpensive, and we continue to recommend BHI, although we rank it behind Buy-rated WFT, DO, and NOV. Key takeaways include:
(1) Incremental margin improvement will be tempered by flat drilling activity in North America and a more challenging pricing environment, project startups, and additional international investment.
(2) BHI is “chasing” $10.5 billion of projects globally, with Statoil ($2 bn), Manifa ($1 bn) & Angola’s Block 31 ($1 bn) bid winner announcements expected shortly.
(3) BHI beat our estimates by 4% in North America and 7% in Latin America, but missed by 3% in Europe/CIS (delays in UK, lower Nigeria activity).

Valuation

BHI is trading at 2008 EV-DACF/P-E of 11.3x/15.3x versus SLB at 14.9x/19.2x and HAL at 10.9x/14.6x.

Key risks

Key risks include capacity additions, a sustained decline in commodity prices, and the broader stock market indices.

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To: Dennis Roth who wrote (14)1/31/2008 9:16:56 AM
From: Dennis Roth
   of 18
 
Baker Hughes Inc. (BHI): Growth, execution challenges remain - maintain Neutral rating - Goldman Sachs - 01/30/08

What's changed


We lowered our 2008 EPS estimate for BHI by 6% to $5.30. Our new estimate includes lower North American revenue growth assumptions caused by pricing pressures, as well as a reduction to our international growth forecasts due to BHI’s more conservative approach to expansion and acquisitions. We also lowered our 12-month, P/E-based price target to $77 from $85, and remain Neutral-rated on the stock. Going forward, the upside catalyst to the shares would be awards of major international projects such as Manifa or Block 31 (Angola), although there is no clarity on timing or BHI’s competitive position at this time. We have also lowered our 2009-2010 EPS estimates by 11% and 9% to $6.05 and $6.67.

Implications


BHI clearly provided the most cautious outlook for 2008 among the group.

There were two key takeaways that have a broader impact on the sector.
(1) The company was considerably more cautious on pricing in North America, citing weakness across several product lines, including fluids, logging, and directional drilling. Beyond pressure pumping, peers have only acknowledged marginal price erosion in various sub-segments, like cased-hole wireline. We believe more widespread price weakness could follow, which would also affect sector-wide margins.
(2) BHI attributed its slower international growth outlook to more conservative business practices stemming from its Deferred Prosecution Agreement. We note that other services companies have received inquiries from the DOJ for possible misconduct, and this may become more of an issue for the sector.

Valuation


BHI is trading at 2008 P-E/EV-DACF of 12.7X/9.1X versus Schlumberger at 15.8X/12.0X, Halliburton at 11.8X/9.2X and Weatherford at 14.7X/10.4X.

Key risks

Weaker-than-expected global economic growth or lower-than-expected oil company spending internationally.

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From: Fredman2/5/2008 12:59:26 AM
   of 18
 
I'm still trying to decide if I should buy more BHI, or GRP.

Thoughts ?

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To: Dennis Roth who wrote (15)4/23/2008 8:29:52 AM
From: Dennis Roth
   of 18
 
Baker Hughes Inc. (BHI): Growth strategy still unclear - maintain Neutral rating - Goldman Sachs - April 23, 2008

What's changed

Baker Hughes reported 1Q2008 EPS of $1.21, which was $0.02 above our estimate and $0.01 above the Street estimate. The earnings beat was due to below-the-line items as a lower tax rate and lower share count contributed $0.04 and $0.02 to EPS. This more than offset 3% of lower than expected operating income due to lower margins in the Completions & Production segment associated with the decline in export sales. We made modest adjustments to our model, including changes to our Drilling and Evaluation and Completion and Production forecasts. Our 2008-2010 EPS estimates have changed by 1%, 1%, and 2%.

Implications

There is no change to our Neutral rating on BHI. We expected BHI’s growth to lag peers this quarter and it did just that - with North America revenue growth of 8% below peer growth of 10% and international growth of 8% below peer growth of 25%. We were hoping for more clarity on BHI’s strategy to reaccelerate revenue growth and close the gap on competitors, but we did not get that on the call. Without that, we think it will be hard for the stock to outperform.

Key takeaways from the call include:
(1) Pricing pressures appear less severe than last quarter, with some pockets of strength in Centrilift and Petrolite.
(2) Margins are likely to remain flattish for the remainder of the year - at a level lower than we originally expected, mainly due to rising costs.
(3) Revenue growth should gradually improve throughout the rest of the year, driven by Latin America, Russia, China and India.

Valuation

BHI is trading at 2009E P/E of 13.1X versus SLB at 17.6X and HAL at 13.5X. Our 12-month price target of $79 (12.8x 2009E EPS) is unchanged.

Key risks

Key risks include a sustained decline in commodity prices and the broader stock market indices.

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From: JakeStraw8/31/2009 8:20:32 AM
   of 18
 
Baker Hughes to purchase BJ Services in cash-and-stock deal valued at $5.5 billion
Monday August 31, 2009, 7:32 am EDT
finance.yahoo.com

"It will better position us to drive international growth and to compete for the growing large integrated projects by incorporating pressure pumping into our product offering," he added. Integrated oil companies are active in all phases of the business including production, refining, transportation and marketing.

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