Monday April 02, 2012
by Jason Clark, contributing editor The Prudent SpeculatorWhile the near-term outlook for
Baker Hughes (
BHI) and other oilfield service companies has recently become a bit murkier, we remain patient and continue to like the long-term prospects.
The company warned that its coming Q1 profits would fall sequentially. The decline in profits was a result of the shift in North American market conditions which has seen exploration and production firms favoring oil and liquids-rich basins that have depressed demand for Baker's pressure pumping line.
Amid record low natural gas prices, many energy firms have switched their near-term focus, and BHI is feeling the pressure, leading it to have to reduce prices at a time when personnel and materials costs continue to climb.
With the expected Q1 margin compression in mind, Wall Street analysts are now forecasting a Q1 profit of $1.11, and a full year 2012 earnings figure of $4.27. BHI is scheduled to release its numbers on April 24.
We like that BHI continues to take proactive steps to better manage its assets and the company overall.
More importantly, we think that its technology is a difference maker and that the company will ultimately benefit from the continued growth in global energy demand and the longer-term supply and demand dynamics.
In the meantime, BHI shares are currently trading at slightly above 10 times consensus forward earnings estimates, compared to an historical average of roughly 13 times (with a low of 7.5 and high of 18).
The stock is also trading at 1.2 times book value while carrying a 1.4% dividend yield. We suggest that investors use the recent pullback to initiate a position or to add to existing holdings. Our current target price is $78.
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