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Baker Hughes Needs Better Execution to Reach $54

NEW YORK ( TheStreet) -- Back in May, I talked about the struggles that energy services giant Baker Hughes (BHI - Get Report) continues to face in an industry that has been marred by slumping prices and weak rig counts.

As with Halliburton (HAL) and Schlumberger (SLB), Baker Hughes showed tremendous progress in the April quarter. In fact, Baker Hughes was the only one of the three companies to post any sequentially growth. But that was as far as the advantages went.

While I was willing to give management plenty of credit for the noticeable improvements, I also couldn't ignore that Baker Hughes also took a significant hit on year-over-year revenue growth and profits, which declined 2% and 30%, respectively. Credit Suisse, meanwhile, saw it another way. Despite the underperformance, Credit Suisse felt it was necessary to assign a $54 price target on shares of Baker Hughes, which (at the time) was a 25% premium from current levels -- a move that I thought was highly premature, if not a complete mistake.
[Read: <a target="blank" data-add-tracking="true" href=""><em>Cramer: J.C. Penney Goes from Bad to Dire</em></a>]

In that article I asked, aside from the slight sequential revenue uptick (less than 1%), what was Credit Suisse seeing that I wasn't? I also suggested:

"The better approach for Baker Hughes (investors) would be to wait and see. That's not a slight. While Baker Hughes looks meaningfully improved, the company still lacks the punching power of Schlumberger and Halliburton. And I don't think that the first-quarter report, which included a 2% decline in revenue, did enough to merit higher optimism -- not when Schlumberger posted 8% year-over-year revenue growth."

My cautious approached was not well received by some readers. But fast-forward three months later; the stock, after having dropped 8% during that span, is back to where it was (around $48 per share) from when we last discussed the company. And following Baker Hughes' second-quarter results, I don't believe that anything has drastically changed to suggest that we didn't have this company pegged pretty well all along.

I wasn't expecting a whole lot coming into the quarter. To that end, Baker Hughes' 3% revenue growth didn't disappoint. Granted, it's not a breathtaking performance when compared to Schlumberger's 7% growth. But it was encouraging that revenue accelerated 5% from the April quarter. The company is doing somewhat better in international markets, which was up 7%, beating expectations.

As with Schlumberger, Baker Hughes posted solid gains in areas including Mideast/Asia, Russia and Africa. But the company is still finding it tough to grow in Latin America, which declined by almost 8%. Management attributed the decline due to reduced activity and disbandment costs in Brazil and Mexico. This, however, was partially offset by decent growth in areas like Russia, West Africa, and the Mideast/Asia.
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