Baker Hughes Inc (BHI) Back To Manufacturing Model - UBS

UBS analyst, Angie Sedita reiterated her Buy rating and $55 PT on Baker Hughes (NYSE: BHI) based 13x 2018E EV/EBITDA.

BHI came out of the gate with a meaningfully changed business model primarily for international markets. The new model is an asset-light structure focused on product lines vs being a "fully integrated service" provider in every geomarket. The company will have a greater focus on "return on capital" by "product line" and on generating cash (not margins). BHI is reverting back to more of a "manufacturing model" (as seen in its early days). Without international scale (as SLB & HAL have) we believe a fully integrated service model in the international markets will almost always be financially challenging. The US market for BHI will only change modestly with a larger retrenchment in the money losing frac markets. In our view, the end outcome of the international strategy, should be higher margins over the intermediate term ('17-‘18). It will be interesting to see how this model plays out once the recovery is fully under way.

For an analyst ratings summary and ratings history on Baker Hughes click here. For more ratings news on Baker Hughes click here.

Shares of Baker Hughes closed at $45.54 yesterday.

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