Better-than-expected second-quarter operating income has improved SunTrust Robinson Humphrey's optimism regarding Baker Hughes A GE Co BHGE’s earnings power.
The Analyst
Analyst Ken Sill upgraded Baker Hughes from Hold to Buy and raised the stock’s price target from $34 to $39.
The Thesis
“Several solid quarters have reduced our concerns about the potential impact of mid-level management departures from the Baker side of the business," Sill said in a Tuesday note. (See the analyst's track record here.)
On Friday's earnings call, Baker Hughes management was cautious given the company’s exposure to late-cycle production and infrastructure spending, the analyst said.
Stronger-than-expected orders and a 1.1-to-1 book-to-bill ratio demonstrate how the company’s offshore and international businesses are “turning the corner," Sill said.
Baker Hughes also faces less exposure to a potential slowdown in Permian completions than peers, according to SunTrust.
“BHGE's direct exposure to pressure pumping comes primarily from a minority interest.”
Continuing improvement in subsea, and expected growth in Baker Hughes' drilling-related and artificial lift businesses should reduce the potential impact of Permian completions activity, Sill said.
Price Action
Baker Hughes shares were trading up 1.5 percent to $32.99 at the time of publication Tuesday.
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