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Bear of the Day

We are downgrading our recommendation for Baker Hughes, Inc. (BHI) to Underperform from Neutral following its first quarter 2012 results. Baker Hughes earnings declined in the first quarter mainly due to the lower margins in North America and pricing constraints in the pressure pumping sector.

We remain cautious about the pricing pressures, supply chain and raw material constraints in its pricing pressure business in North America, and thus prefer to stay on the sidelines. Although activity is expected to climb in 2012, we remain apprehensive for the geo-political issues that may affect the operations in certain areas.

Hence our downgrade on the stock. Our $40 price objective is based on the 2012 P/E multiple of 10.8x. Our target multiples are well within the historical trading range for the stock.

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