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Why Baker Hughes May Fly 44%, Outperforming Schlumberger
Posted February 9, 2012
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By Takeover Analyst
While Baker Hughes (BHI) has struggled recently, near-term visibility is improving and will drive multiples expansion. The Street currently rates shares a "buy" versus a "strong buy" for Schlumberger (SLB). While Schlumberger is preferred on the Street, I prefer Baker Hughes due to the bar being set low despite strong fundamentals and low valuation ratios compared to historical levels.
From a multiples perspective, Baker Hughes is by far the cheaper of the two. It trades at a respective 12.6x and 8.6x past and forward earnings while Schlumberger trades at a respective 22.3x and 13.7x past and forward earnings. Baker Hughes' current PE ratio is 69% of the 5-year average despite a strong ROIC of 9.1%. Both firms are highly volatile with betas of 1.4 or greater.
At the fourth quarter earnings call, Baker Hughes' CEO, Martin Craighead, addressed particularly weak domestic performance:
"In North America, our results were disappointing as very strong performance in drilling systems, completions and artificial lift were more than offset by Pressure Pumping, where we've experienced a variety of cost and efficiency challenges associated with ramping demand. READ FULL ARTICLE HERE
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