"We are now valuing HAL at 15x the combined earnings power of HAL and Baker Hughes (BHI) in 2017, discounted back three years at 15%. We believe our growth assumptions and 15% discount rate account for the inherent lack of visibility into 2017. This method results in a value of $60 per share for HAL and $87 for BHI, both equating to about 60% upside," analysts said.
"Looking past current market turmoil, we see a landscape that is very favorable for long-term North American energy production. For liquids, we see peak sustainable production from OPEC coupled with the high cost and scarcity of new finds in other regions as positive drivers for unconventional oil in North America," analysts noted.
Nevertheless, Drexel Hamilton reduced its 2015 EPS estimate to $4.14 from $4.37 "to reflect broadly lower revenue and margins," they said.
"We are also reducing Q4 EPS to $1.10 from $1.21 to reflect the initial impact of lower oil prices on activity in some regions (North Sea, Africa) and more pronounced seasonal softness," analysts added.