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   Gold/Mining/EnergyBaker Hughes


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From: JakeStraw6/27/2005 11:02:38 AM
   of 18
 
Baker Hughes Set For 'Solid' Q2
forbes.com

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From: JakeStraw7/29/2005 3:49:34 PM
   of 18
 
Baker Hughes Not Half-Baked
biz.yahoo.com

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From: Dennis Roth7/30/2005 9:00:56 AM
   of 18
 
Baker Hughes (OP/A): Raising estimates and fair value to $77 = 36% upside
Goldman Sachs July 29, 2005

BHI 2Q2005 EPS of $0.64 beat our estimate and consensus of $0.53 with $0.04 attributable to unsustainably lower tax rate. Revenue and EBITDA were 4%/ 6% stronger than expected with year-over-year incremental margins of 38% only slightly below SLB and HAL despite no presence in pressure pumping (50-60% incrementals at this point in the cycle) and a 12% decline in Centrilift (second highest margins in BHI) caused in part by revenue slippage into 3Q2005. Performance in fluids and bits and completions appears to have outpaced competition with FEWD in line. We are raising our 2005-07 EPS estimates to $2.62/$3.45/$4.00 from $2.30/$2.80/$3.15 given stronger E&P spending trends and our fair value estimate to $77 (22.3x 2006E PE) from $62 = 36% upside potential. We reiterate our Outperform rating and Attractive coverage view.

HOW DOES BHI 2Q05 EPS PERFORMANCE STACK UP?

BHI year-over-year revenue grew 18% - slightly below the group average due to a difficult comp associated with very large ESP sales to Russia in 2Q2004 - while sequential growth was in line. Year-over-year EBIT margin grew 395 bps - also in line with the group and was +55bps our estimate. Y-y incremental margin of 38% was slightly below SLB and HAL's ~40% level, but was above SII, BJS, WFT.
Exhibit 1 - 2Q05 Revenue and EBIT trends - BHI vs peers

Quarterly Revenue seq chg y-y chg chg vs GS est
SLB (EX GECO) 9.8% 20.1% 6.1%
HAL (ESG) 13.1% 29.8% 6.4% BJS 2.7% 24.1% 1.8%
SII (ex distribution) 6.5% 23.0% 4.6%
WFT 9.3% 26.3% 5.4%
BHI 7.6% 18.4% 3.8%

Quarterly EBIT seq chg y-y chg chg vs GS est
SLB (EX GECO) 20.6% 48.5% 15.3%
HAL (ESG) 29.5% 94.1% 19.5% BJS 2.1% 54.4% 7.1%
SII (ex distribution) 5.8% 41.5% 2.9%
WFT 5.4% 54.3% -1.7%
BHI 11.8% 54.4% 7.3%

EBIT margins (bps) seq chg y-y chg chg vs GS est
SLB (EX GECO) 198 422 176
HAL (ESG) 267 700 231
BJS -11 394 99 SII (ex distribution) -9 197 -24
WFT -52 256 -101
BHI 64 395 56

Revenue/rig seq chg y-y chg chg vs GS est
SLB (EX GECO) 18.0% 6.0% 6.6%
HAL (ESG) 21.6% 14.6% 8.2%
BJS 10.4% 9.5% 2.3% SII (ex distribution) 14.4% 8.6% 5.1%
WFT 17.4% 11.5% 5.9%
BHI 15.6% 4.6% 4.3%
Company reports and Goldman Sachs Research estimates

I, Terry Darling, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

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From: JakeStraw10/28/2005 8:27:02 AM
   of 18
 
Baker Hughes Announces Third Quarter Results
biz.yahoo.com

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To: Dennis Roth who wrote (6)10/28/2005 6:40:39 PM
From: Dennis Roth
   of 18
 
Baker Hughes (OP/A): We view weakness as a buying opportunity - Goldman Sachs - October 28, 2005

BHI recurring 3Q2005 EPS ex-hurricane of $0.70 (reported = $0.65) was above our estimate of $0.69 + consensus of $0.67 due to lower tax rate. Oilfield revenue was 1% below our estimate (weaker Russia), but operating income was 1% higher (stronger drill bits). Incremental margins ex-hurricane were an impressive 44% yoy/ 63% seq + suggest 4Q2005 EPS guidance of $0.70-0.72 (low-30% incrementals) is conservative as pricing is accelerating. We are raising our 2006-07 EPS estimates to $3.50/ $4.15 from $3.45/ $4.00 given our higher E&P spending forecast (+20% vs +15% previously), but lowering our 2005 EPS estimate to $2.56 from $2.62 for hurricane impact. Our fair value of $78 (22.3x 2006 PE) implies 40-45% upside and we'd use any weakness in the shares to add to positions. Yesterday's share repurchase announcement suggests mgt agrees with our view.

Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Terry Darling; Jerry Revich.

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To: Dennis Roth who wrote (8)2/16/2006 6:23:45 PM
From: Dennis Roth
   of 18
 
Baker Hughes (OP/A): First Take: Solid 4Q, but peers' relative performance vs expectations was stronger - Goldman Sachs - February 16, 2006

BHI's 4Q05 EPS of $0.75 beat our $0.74 estimate and consensus of $0.73 w/ revenue 4% stronger than expected, but incremental margins weaker than expected, and overall EBIT in line. SLB + HAL had stronger results vs expectations. BHI division revenue performance on a sequential basis compared favorably with peers except in Production Chemicals, which was flat + may be timing + the answer to weaker incrementals. 2006 EPS guidance of $3.40-$3.60 appears beatable to us, though Baker Hughes mgt is typically conservative at the beginning of the year. We'd expect relative underperformance today, pending conference call commentary, but remain positive intermediate to long-term. Maintain OP/A rating.

Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Terry Darling, Jerry Revich.

----
Baker Hughes (OP/A): Raising estimates + fair value to $89 - Goldman Sachs - February 16, 2006

Following a review of our model, we are raising our 2006-07 EPS estimates to $3.60/ $4.45 from $3.50/ $4.15 as well as our fair value to $89 (20x 2007 PE) from $83. Key drivers of our upward revisions include higher E&P spending growth of +25%/ +15% from +20%/ +10% and lower net interest expense. BHI remains among our favorite oil service stocks - rated OP/A.

Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Terry Darling, Jerry Revich.

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To: Dennis Roth who wrote (9)4/27/2006 6:12:42 AM
From: Dennis Roth
   of 18
 
BHI (NR): Best 1Q among the Big 3 - Goldman Sachs - April 26, 2006

We raised our '06/'07 EPS forecast by $0.40/0.48 to $4.02/$4.84 due to both higher growth assumptions and stronger incrementals. Among the Big 3, BHI posted the strongest 1Q performance relative to expectations with the highest sequential incrementals in the group. BHI's performance made up for the low incrementals in the 4Q05 compared to peers. First quarter results continue to suggest that pricing power remained strong across the board. This quarter, the benefit of price increases was most visible in the case of BHI. BHI is Not Rated.

(Goldman Sachs & Co., and or one of its affiliates is acting as advisor to Baker Hughes Incorporated in the proposed sale of its interest in WesternGeco to Schlumberger Limited. Goldman Sachs & Co., and or one of its affiliates will receive a fee for this advisory role).
HAL (OP/A) is still our favorite stock among the Big 3.

COVERAGE UPDATE: HAL IS STILL OUR FAVORITE AMONG THE BIG 3 - We continue to prefer HAL among the large caps. We still think that Exploration and Pressure Pumping should show the best pricing power/incrementals over the next 12-18 months. 1Q06 results seem to support our view that pricing power is strong for Exploration (e.g. Strong seismic, wireline and directional results across the board) and Pressure Pumping (both HAL and BJS reported strong results and announced price increases that should benefit upcoming quarters). Therefore, subject to normal quarterly lumpiness, we believe SLB (Exploration) and HAL (Pressure Pumping) have more room to beat estimates over the next 12-18 months than BHI.

IMPLICATIONS FOR THE INDUSTRY: STRONG PRICING POWER - All Oil Services companies that have reported so far indicated that pricing power remained strong across the board, with North America leading the way. "Leading edge" prices also seem solid in international markets. And even though the impact of international price increases on margins is more gradual (because of the more contract-oriented nature of these markets), it should provide a good base for healthy incrementals for the industry over the coming quarters.

BHI INCREMENTALS CATCH UP AFTER A WEAK 4Q05 - This quarter, the benefit of price increases was most visible in the case of BHI, which posted sequential incrementals of 114%, versus SLB's 68% (ex-WesternGeco) and HAL's 70% (ex-KBR). Even though the 1Q performance is certainly a big positive for BHI, it is prudent not to overstate its importance since sequential incrementals are always volatile. For instance, BHI's outperformance this quarter basically compensates for the company's weak 4Q05 incrementals of 28%, vs. SLB's 40% and HAL's 37%. In fact, using annual numbers (more robust metric and less volatile) BHI's incrementals of 43% are very similar to SLB's 39% and HAL's 43%. (Note: We tried to allocate corporate expenses and eliminations to make the numbers more comparable among the companies. Therefore, they may differ from incrementals calculated before corporate expenses. The conclusions of our analysis would be the same even if we did no adjustments. The 1Q06 sequential unadjusted incrementals for BHI/SLB/HAL are 92%/67%/81%)

WHAT TO WATCH FOR:
(1) Pace of the share buyback;
(2) Ability to improve Completions & Production division growth/margin performance to narrow the gap relative to the stronger Drilling and Evaluation division; and
(3) Execution of Eastern Hemisphere growth strategy.

RAISING ESTIMATES: We raised our '06/07 EPS forecast by $0.40/0.48 to $4.02/$4.84. The key drivers for our increased estimates were higher incremental margins and slightly higher revenues. The divisions with the largest increases were: Baker Atlas, Inteq, and Hughes Christensen. The $0.40 increase in our 2006 EPS estimate can be broken down as follows:
(1) Drilling and Evaluation (+$0.33);
(2) Completion and Production (+$0.14);
(3) Sale of Western Geco (-$0.20);
(4) Net interest expense (+$0.08);
(5) Share buy-backs (+$0.06); and
(6) other non-operating items (-$0.01).

Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Daniel Henriques, CFA, and Daniel Boyd, CFA.

============

BHI (NR): Strong 1Q with impressive incrementals April 26, 2006

Baker Hughes 1Q06 EPS of $0.93 beat our $0.76 estimate and consensus of $0.78. Revenues were 5% above our estimates and EBIT margin of 21.4% was 310 bps better than expected due to strong incrementals (114% sequentially). BHI operating performance relative to expectations (EBIT 23% above our estimate) was stronger than SLB (5% above ex-WesternGeco) and HAL (7% above ex-KBR). Eastern Hemisphere revenues were -2% sequentially compared to SLB's -1% and HAL's -4%, while North America revenue growth of 12% compares with SLB's 18% and HAL's 12%. Guidance of $3.90-4.20 (ex- WesternGeco 1x gain), up from $3.40-3.60, is above our $3.62 est and consensus of $3.57. Revenue growth guidance of 23-25% is also higher than our 21%. BHI is rated NR. We prefer HAL (OP/A)+ SLB (NR), but BHI's strong 1Q and the recent increase in buyback authorization should lead to strong near term performance.

(Goldman Sachs & Co., and or one of its affiliates is acting as advisor to Baker Hughes Incorporated in the proposed sale of its interest in WesternGeco to Schlumberger Limited. Goldman Sachs & Co., and or one of its affiliates will receive a fee for this advisory role).

CONFERENCE CALL DETAILS BHI's conference call will begin today [ Edit: Yesterday ] at 8:30AM (ET). The dial-in number is (800) 374-2469.

Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Daniel Henriques, CFA, and Daniel Boyd, CFA.

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From: Dennis Roth4/26/2007 8:18:22 AM
   of 18
 
Turnaround still has legs; Raising estimates – Reiterate Buy April 26, 2007 - Goldman Sachs

What's changed

Baker Hughes posted strong 1Q07 results. We raised our 2007/2008 EPS forecasts by $0.18/$0.19 to $4.92/$5.84. We also raised our 12-month price target by $2 to $84 (12.5x 2007 EV/DACF) based on higher estimates.

Implications

We reiterate our Buy rating for Baker Hughes shares. The solid 1Q07 operating performance demonstrates that the company is making progress in terms of execution after two very disappointing quarters. We still believe there is room for further margin expansion and we see upside potential to our revised estimates and to company guidance if execution continues to improve over the coming quarters. The compounded impact of upwards EPS revisions and multiple expansion should lead to outperformance relative to the group over the next several months.

Valuation

Even after Wednesday’s rally, Baker Hughes is still trading at a discount to peers. For instance, in terms of 2007 EV-DACF/P-E Schlumberger is trading at a 24%/21% premium to Baker Hughes versus historic (versus historic ~12%/~14%). Baker Hughes is trading at a 2007 EV-DACF/P-E of 11.7X/15.9X, versus 12.6X/16.2X for Halliburton and 14.5X/19.3X for Schlumberger.

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 Roth7/15/2007 5:12:17 AM
   of 18
 
Baker Hughes Inc. (BHI): Maintain Buy rating - Goldman Sachs

News

Baker Hughes announced that 2Q2007 EPS is expected to be $1.07-1.09 versus consensus and our estimate of $1.18. Variance to our estimate is primarily due to weaker-than-expected results from Drilling and Evaluation attributable to decreased activity in Canada ($0.05-$0.07). Our estimates are currently under review. Analysis Approximately 50% of the miss is due to Canadian weakness, where the rig count was down 50% yoy and 72% sequentially. The other 50% is due to two nonrecurring items: (1) higher-than-expected tax rate due to a one-time charge ($0.03), i.e., the normalized tax rate is not expected to be higher than previously expected, and (2) higher repair and maintenance cost at INTEQ ($0.02); however, we do not expect to exclude this from earnings. We expect INTEQ profitability to return to normal following this quarter.

Implications

(1) We maintain our Buy rating for Baker Hughes shares. We remain confident in the company's international growth profile and ability to improve operations at Baker Oil Tools and Baker Atlas. (2) Weatherford's shares (Buy) are also likely to be weak on the news, and we see greater risk to 2Q earnings; however, Weatherford`s exposure to heavy oil exposure should help. (3) Other companies likely to be negatively impacted are Oil States and BJ Services. (4) Overall we believe investors have high expectations for 2Q earnings season given the sector's recent multiple expansion and outperformance relative to commodities. Given the negative sentiment that is a likely result of a potentially uninspiring earnings season, we do not see near-term catalysts to further fuel the rally in the sector and believe a pullback is likely. We would view a pullback in the 5%-10% range as an attractive entry point for investors with a 6-12 month time horizon.

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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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