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Baker Hughes Incorporated Message Board

  • investor_apple investor_apple Mar 26, 2012 11:58 AM Flag

    Time to start avg in...

    5 Reasons Why The Big Drop In Baker Hughes Is A Buying Opportunity

    "The company recently warned that the first quarter of 2012, would be weaker than expected, and that cause the stock to drop significantly. The company said earnings for the quarter would be below the $1.22 per share level it reported in the fourth quarter due to lower profit margins. It blamed project delays in Latin America as well as weather and the mix of product sales. This news took the stock down from about $48 per share, to around $43 per share in just a couple of days. While weaker margins are a short term disappointment, long-term investors should look forward and consider this as a potential buying opportunity.

    Investors who are dumping this stock near the 52-week low over a single quarter that was slower than expected, could regret their focus on the short-term.

    Baker Hughes appears ready to take advantage of rising global oil
    demand for many years to come. With the shares at just about $43, the price to earnings ratio is now below 8 times forward earnings. The average stock in the S&P 500 Index trades for over 12 times earnings, that makes this stock look undervalued. If Baker Hughes were to trade with an average market multiple, it could rise by about 50%. Investors who have a long-term perspective should view the recent drop in these shares as a buying opportunity. However, since the stock is weak, it makes sense to average in over time in case it drops further.

    Here are some key points for BHI:

    Current share price: $43.22
    The 52 week range is $41.91 to $81
    Earnings estimates for 2012: $4.61 per share
    Earnings estimates for 2013: $5.56 per share
    Annual dividend: 60 cents per share which yields 1.3%"

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    • The estimates have been lowered really low too for next quarter so a small beat will send this ralling. I think a lot of shorts are eventually going to get trapped. Cheapest and best value of oil services

    • Just sold Jan puts at strike of $28. Got $1.24 for the puts. So if put to me, that gives me a stock price of $26.76. I just don't see it going this low, or if it does, staying there very long. Just my two cents.

    • <<Don't you think there's a rational reason for the sell-off, such as poor company performance??>>

      Of course there is a rational reason behind the sell off. Fear is always a big motivator in selling. Standard & Poors addresses the risks in their assessment and I think that their model is still valid.

      << Risks to our recommendation and target price include lower energy prices; reduced drilling in international markets; slower-than-planned infrastructure build; higher-than-expected cost inflation; and integration risks arising from the BJ Services acquisition.

      Our discounted cash flow model, which assumes free cash flow growth of 8% per year for years, and 3% thereafter, shows intrinsic value of about $60. Using multiples of 7X enterprise value to projected 2012 EBITDA, and 10X estimated 2012 cash flows (below peers, which
      we see as warranted by below-average projected 2012 ROIC), and blending these results with our DCF model, our 12-month target price>>

      I'm changing my rating to a hold. However, I'd certainly be a buyer at $35 a share, which is what my puts give me. Actually, once you factor in the premium for the puts, my entry price for BHI would be $32.25. At this price, I think that the potential for BHI staying above $32.25 is far greater than the potential to drop lower.

    • It is amazing how short term thinking, whether by analysts or investors, dominates this stock.

      The expectation bar was significantly lowered by mgmt, and perhaps this was an attempt by them to finally put some certainty on how their business will turn around later this year. Better they told us now than in a month during a conference call. The worst case is priced in so I bought more at 42.85.

47.83+1.78(+3.87%)Jul 29 4:02 PMEDT