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Baker Hughes: Oil Value Bet, or Risk?

By    |   Wednesday, 19 Oct 2011 11:11 AM

 The share price of oilfield services company Baker Hughes International (BHI) has taken an extra large fall during a general stock market decline. From a share price peak near $80 in mid-summer 2011 shares declined by almost 40 percent by the end of the third quarter, while the overall market was off 15 percent. Does this make Baker Hughes an oil value bet, or is it simply a company headed for trouble?

Baker Hughes provides oilfield services in two categories. Drilling and evaluation products are used to find oil while the completion and production line of products help oil companies get the found oil out of the ground. Baker Hughes provides its products and services worldwide.

For the second quarter of 2011, Baker Hughes reported net income of 77 cents per share, up from 23 cents a year earlier but lower than the 87 cents reported in the first quarter. Net income for the second quarter was 93 cents per share before a reserve set aside equaling 16 cents per share for the company's Libyan operations.

For the full year, Baker Hughes is forecast to earn $4.35 per share compared to earnings of $2.22 in 2010. The consensus estimate for 2012 is $5.93 per share.

Acquisition bumps results

In April 2010, Baker Hughes completed a $5 billion acquisition-merger with BJ Services. The merger seems to have helped turn around net results for Baker Hughes.

After earning over $5 per share in 2008, net income fell to under $1.50 in 2009 on a 20 percent decline in revenues after the commodity bubble burst in late 2008. Revenues in 2010 were 25 percent higher than in 2008 and are forecast to increase by more than 35 percent in 2011.

The steep share price decline for BHI is hard to explain looking at recent and projected results. The selloff could be due to the market losing favor with the oilfield service companies or a lack of belief in the "quality" of the Baker Hughes projected earnings.

Recent Wall Street analyst ratings on BHI have been generally in the buy or outperform category. However, the most recent rating reports were put out when the share price was near its peaks. The major analysts have not released updated opinions since the share price took its tumble.

The company reports next on Nov. 1.


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The share price of oilfield services company Baker Hughes International (BHI) has taken an extra large fall during a general stock market decline. From a share price peak near $80 in mid-summer 2011 shares declined by almost 40 percent by the end of the third quarter,...
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2011-11-19
Wednesday, 19 Oct 2011 11:11 AM
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