Baker Hughes Inc (BHI) Valuation

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Company Profile (obtained from Google Finance): Baker Hughes Incorporated (Baker Hughes) is engaged in the oilfield services industry. The Company is a supplier of wellbore related products and technology services, including products and services for drilling, formation evaluation, completion and production and reservoir technology and consulting to the worldwide oil and natural gas industry. The Company operates through two segments: the Drilling and Evaluation segment, and the Completion and Production segment. In April 2008, the Company acquired two reservoir consulting firms, Gaffney, Cline & Associates (GCA) and GeoMechanics International (GMI).

ModernGraham Comments: None at this time.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 7/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 5/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

• Last Updated    10/4/2009
• MG Value    $154
• MG Opinion    Undervalued
• Value Based on 3% Growth    $58
• Value Based on 0% Growth    $34
• Market Implied Growth Rate    0.84%
• Net Current Asset Value (NCAV)    $6.92
• PEmg    10.17
• Current Ratio    4.18
• PB Ratio    1.77

Key Data:

Balance Sheet – 6/30/2009

• Current Assets    $6,130,000,000
• Current Liabilities    $1,466,000,000
• Total Debt    $1,777,000,000
• Total Assets    $11,099,000,000
• Intangible Assets    $193,000,000
• Goodwill    $1,407,000,000
• Total Liabilities    $3,986,000,000
• Outstanding Shares    309,880,000

Earnings Per Share – Diluted

• 2009 (estimate)    $1.52
• 2008    $5.30
• 2007    $4.73
• 2006    $7.21
• 2005    $2.56
• 2004    $1.57
• 2003    $0.52
• 2002    $0.67
• 2001    $1.28
• 2000    $0.19
• 1999    $0.10

Earnings Per Share – Modern Graham

• 2009 (estimate)    $4.00
• 2008    $4.92
• 2007    $4.26
• 2006    $3.51
• 2005    $1.55
• 2004    $0.98

Valuation History:

• 10/4/09 – Value $154, Actual Price $40.66, Undervalued & Defensive