Baker Hughes Target Upped to $95

We reiterate our Buy recommendation and EPS estimates for Baker Hughes, Inc. (BHI - Analyst Report) shares ahead of the company's second-quarter results. Despite the company's relatively soft results in the last quarter, our long-term view of the business continues to remain favorable.

We expect strong revenue growth during the second half of 2008, powered by an improved North American outlook and continued international expansion. Being a premium oilfield service player, the company remains well-positioned to capitalize on the current oilfield cycle.

Baker Hughes shares trade at a discount to its peers despite the company's strong oilfield service franchise and growing international footprint. Baker Hughes enjoys strong leverage to the current oilfield cycle, being the leader in a number of product and service categories. More than 70% of Baker Hughes revenue comes from products and services where it has the number 1 or 2 market share. Management has made steady progress over the last few years in repositioning the company by divesting non-core assets and instituting greater capital discipline.

On relative valuation grounds, Baker Hughes shares are attractive at current levels, compared to its large-cap peers. We believe that the new BHI deserves a relatively modest valuation discount to Schlumberger Ltd. (SLB - Analyst Report), if at all, compared to the current level. This is the primary reason for our continued positive outlook for the stock. Our new $95 price objective, raised from $90 before, is based on 2009 P/E and EV/EBITDA multiples of 15.5x and 8.1x, respectively. Our target multiples are well within historical trading ranges for the stock.

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Read the full analyst report on SLB