Baker Hughes Provides Tangible Evidence Company Is Able To Execute On Its Objectives

Cowen upgraded Baker Hughes Incorporated BHI to Outperform from Market Perform on its first solid quarter following the break-up of the merger with Halliburton Company HAL and potential upside to cost savings target.

Baker Hughes reported adjusted EBITDA of $269 million versus consensus of $88 million and Cowens $130 million estimate. Adjusted EPS of $(0.15) compares to the consensus $(0.44) and Cowen’s $(0.31) estimate.

“[T] angible evidence the company is able to execute will draw investors sidelined by the merger with HAL back into the mix,” analyst Marc Bianchi wrote in a note.

Noting better execution, Bianchi sees potential for 50 percent upside to the company's guided $650 million of cost savings by the end of 2016.

“We now assume a total of $1B of cost cuts (up from $800MM earlier), compared to guidance of $650MM by year end 2016 and un-quantified upside in 2017,” Bianchi highlighted.

Looking ahead, the analyst expects sequential North American revenue growth in the fourth quarter and models North American revenues increasing 38 percent in 2017.

Internationally, the company still expects activity declines and pricing pressure in the near-term. The analyst projects revenues down 4 percent in 2017.

Further, Bianchi believes a successful implementation of new strategy could boost margins compared to previous cycles, albeit at the expense of revenue.

“Certainly there is some doubt about BHI's ability to deliver given the disruption caused by the failed merger with HAL, we believe this doubt creates opportunity as the company continues to have market leading product offerings and is demonstrating an ability to execute,” Bianchi added.

The analyst hiked the price target to $65 from $47, with the revised target offering 20 percent potential upside.

At time of writing, shares of Baker Hughes were down 0.18 percent to $54.29.