While there are still concerns about the overall health of the oil industry -- which has been marred by slumping prices and weak rig counts -- analysts at Credit Suisse think Baker Hughes has turned the corner following years of reorganization. But is the stock worth $54 per share, which suggests a 25% premium from current levels? Credit Suisse believes it does.
From the numbers that I've seen from rivals Halliburton (HAL) and Schlumberger (SLB) the results have been mostly positive. Given what their management teams have stated, investors should expect a rebound for the sector.
However, the cynic in me won't forget that the same level of optimism was also proclaimed for 2012. Instead, things got worse. To date, the industry has suffered five consecutive quarters of falling rig counts. I suppose Credit Suisse feels that this quarter reflected a bottom in the decline. In many respects, there was some evidence to support this theory. But I still want to be cautiously optimistic here.
The better approach on Baker Hughes 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. I don't think 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. For that matter, even though Halliburton didn't excite the Street, the company still posted a modest year-over-year increase. So what exactly is Credit Suisse seeing in BHI that I'm not? My guess is it is looking at the fact that of the three, Baker Hughes was the only one to post sequential growth, albeit by less than 1%, which supports the "bottom" theory. In other words, Baker Hughes can't get any worse from here. Still, does it deserve 13% increase in the share price, especially when net income declined 30% year over year? This is where Baker Hughes can benefit from better diversification as North American weakness really took a toll on the company's performance. Granted, the company is working hard to build its international market position. But with North America being such an overhang, I'll feel much better to see those efforts accelerated.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV