Baker Hughes Remains Neutral - Analyst Blog
13 Mai 2013 - 5:30PM
Zacks
We reaffirmed our Neutral
recommendation on Baker-Hughes Incorporated (BHI),
one of the largest oilfield service companies in the world, on May
2, 2013. Operational efficiencies in Iraq drove margin improvement.
However, high mobilization costs for the newly integrated drilling
services in Norway restricted earnings. The company holds a Zacks
Rank #3, which is equivalent to a short-term Hold rating.
Why Maintained?
Baker Hughes' strong portfolio of products and services should help
it post better-than-average results in North America and enable it
to further expand in the international markets. The company also
has a competitive set of technologies, which allows it to bolster
its activity in the deepwater Gulf of Mexico (GoM). The company has
successfully introduced products such as the AutoTrak Rotary
Steerable System and advanced completion systems in regions that
have a meaningful impact on its earnings and cash flows.
In 2013, management believes the Middle East/Asia Pacific, and
Europe/Africa/Russia/Caspian regions, in particular Iraq and Saudi
Arabia, are likely to be the primary growth drivers. Saudi Arabia
is expected to drive the earnings of the Middle East/Asia Pacific
segment, while Norway is likely to witness operational growth and
margin improvement. North America also witnessed improvement in
earnings during the quarter mainly on better utilization of
pressure pumping in the U.S. and stepped up activity in Canada.
Baker Hughes has taken effective steps for the nagging pricing
weakness in the pressure pumping market in North America. As part
of the effort, it has trimmed its 2013 capex estimate by 30% to $2
billion, on an annualized basis. With lower capital spending
expected this year, we believe the company will be able to generate
free cash flow and begin to repurchase shares more
aggressively.
However, Baker Hughes’ first quarter earnings fell 24.4% from the
year-ago level. The underperformance mainly stemmed from seasonal
weakness, in particular the Europe/Africa/Russia/Caspian segment.
Moreover, weak activity in several important markets of Baker
Hughes resulted in an unfavorable mix. We remain apprehensive about
the reduction in rig activity levels in 2013 and the company's
broad exposure to pressure pumping, which could affect earnings
going forward.
Other Stocks to Consider
While we prefer to remain on the sidelines for Baker Hughes, there
are other stocks in the sector that appear rewarding. These include
Dawson Geophysical Company (DWSN), SM
Energy Company (SM) and Exterran Holdings,
Inc. (EXH), which are expected to perform impressively
over the next few months and carry a Zacks Rank #1 (Strong Buy).
BAKER-HUGHES (BHI): Free Stock Analysis Report
DAWSON GEOPHYS (DWSN): Free Stock Analysis Report
EXTERRAN HLDGS (EXH): Free Stock Analysis Report
SM ENERGY CO (SM): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Dawson Geophysical (NASDAQ:DWSN)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Dawson Geophysical (NASDAQ:DWSN)
Historical Stock Chart
Von Jul 2023 bis Jul 2024