NEW YORK (TheStreet) -- If you ever doubted that the Street is prepping for an oil services recovery, consider that shares of Baker Hughes (BHI - Get Report) jumped more than 3% on management's reduced guidance. That rarely happens in today's market, much less within a commoditized industry like oil.
Despite Baker Hughes' struggles with weak oil prices and soft rig counts, the Street always wanted to love this company. And the entire sector, including market leaders Schlumberger (SLB) and Halliburton (HAL), is posting better-than-expected third-quarter earnings results.
There's no denying that this industry is on the rebound. Given the evidence of improved business conditions in North America, investors have even more reason to be optimistic.
Although it has always been the third wheel to Schlumberger and Halliburton, Baker Hughes has been no laggard. In fact, Baker Hughes' shares have outperformed Schlumberger over the past year, at 24% vs. 22%, respectively. It seems as if management is finally ready to take steps to produce the results that the Street covets.
That's why the stock jumped last week even with management's reduced guidance. Astute investors understand the reasons for the reduction have little to do with the company's fundamentals. Baker Hughes' long-term growth potential remains intact. Management now projects earnings per share to be in the range of 60 cents to 62 cents, down sharply from previous estimates of 78 cents to 80 cents.
But Baker Hughes receives the benefit of the doubt. Investors remember that the company's profits surged 22% in the October quarter. In the guidance reduction, management also cited last November's shutdown of the company's Iraq operations, which occurred due to protests by local residents at the Basra facility. Schlumberger also experienced similar distractions in that region.
With Baker Hughes due to report fourth-quarter earnings Tuesday, management must affirm what the Street already assumes to be true: If and when the energy market does fully recover, Baker Hughes will regain its status as a strong oil producer. That is much preferred to the company's natural gas performance, which has suffered considerably more.
On Tuesday, management will also need to make investors feel better about the fracking business, which had weakened due to the natural-gas surplus.
In short, I don't believe Baker Hughes management deserves the skepticism they have faced, particularly since both Schlumberger and Halliburton were forced to make similar adjustments to grow profitability.