SunTrust Upgrades Baker Hughes After 'Several Solid Quarters'

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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