Zacks Analyst Blog Highlights: Yahoo, Microsoft, Baker Hughes, Schlumberger and Halliburton

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Jan 26, 2011, 09:30 ET

CHICAGO, Jan. 26, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Yahoo! Inc. (Nasdaq: YHOO), Microsoft Corp. (Nasdaq: MSFT), Baker Hughes Inc. (Nasdaq: BHI), Schlumberger Ltd. (NYSE: SLB) and Halliburton Co. (NYSE: HAL).

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Here are highlights from Tuesday's Analyst Blog:

Yahoo! Showing Progress in Q4

After the closing bell Tuesday, Yahoo! Inc. (Nasdaq: YHOO) posted modest earnings and revenue beats for the company's 4th quarter of 2010. Earnings per share reached 24 cents, topping the Zacks Consensus Estimate of 22 cents by 9.1%, and revenues of $1,205 million in the quarter (after traffic acquisition costs, or TAC) beat the Zacks estimate by a modest 1.4%.

Year over year, things look much more impressive on the EPS side. The 24 cents per share was a 120% improvement from Yahoo's 11 cents in Q409. For sales, Yahoo! actually performed 4% better a year ago, bringing in after-TAC revenues of $1,258 million.

The reason for this discrepancy has to do with the revenue sharing Yahoo! now does with Microsoft Corp. (Nasdaq: MSFT) in regards to the companies' recently completed Search Agreement. According to Yahoo!, the company has successfully transitioned to Microsoft's search platform (for the U.S. and Canada) in the 4th quarter.

The company also considers its transition costs from the Search Agreement to have had a neutral net impact on total operating expenses in the quarter. What's more, in the longer term both Yahoo! and Microsoft are hopeful their Search Agreement will show signs of winning share in the overall search market.

Among the year-over-year highlights cited by Yahoo! are a 16% increase in display revenue (ex-TAC) and a doubling of its operating margin from 7% to 14%.

Analysts, for their part, have mostly been sitting on their hands for Yahoo! this quarter. The 22 cents per share EPS estimate that makes up the Zacks Consensus from 29 analysts covering Yahoo! is exactly what it has been all quarter. Five analysts had bumped estimates up for the quarter in the past week, but not enough to register any change in the estimate.

Traders sold Yahoo! by 7 cents (-0.44%) per share prior to the closing bell, and since the earnings announcement, YHOO shares are down an additional 45 cents per share (-2.81%).

Baker Hughes' Profit Soars

Baker Hughes Inc. (Nasdaq: BHI) reported a nearly three-fold jump in per share profit in its fourth quarter given the ongoing strength of customer spending in unconventional oil and gas plays and price realization.

The company's earnings came in at 77 cents per share, beating the Zacks Consensus Estimate of 65 cents and year-ago quarter's earnings of 27 cents. Excluding acquisition-related costs and an investment gain, earnings were 84 cents per share in the fourth quarter of 2010.

Revenue in the quarter shot up more than 82% to $4.42 billion from the year-earlier level of $2.43 billion. The quarter's revenue also exceeded the Zacks Consensus Estimate of $4.27 billion.

Notably, Baker Hughes' bigger rivals Schlumberger Ltd. (NYSE: SLB) and Halliburton Co. (NYSE: HAL) also posted better-than-expected quarterly results on the back of the all-important North American onshore activity.

Segmental Highlights

Of Baker Hughes' total quarterly revenue, North America, Europe/Africa/Russia/Caspian, Middle East/Asia-Pacific and Latin America accounted for 50%, 18%, 15% and 11%, respectively. The remaining was generated by the Industrial and Others segments.

A drastic improvement in before-tax operating profit was noticed in North America during the quarter. Profit before-tax margin in this region stood at 22%, compared with 9% in the year-earlier quarter. Further, Latin America, Europe/Africa/Russia/Caspian, Middle East/Asia-Pacific and Industrial Services and Other recorded profit before-tax margin of 9% (versus 3% in the year-ago quarter), 8% (versus 13%), 10% (flat year over year) and 10% (versus 13%), respectively.

Liquidity

At the end of the quarter, Baker Hughes had $1.71 billion in cash and cash equivalents, while long-term debt stood at $3.89 billion, representing a debt-to-capitalization ratio of 21.4% (down from 21.8% at the end of third quarter). The company's capital expenditures were $486 million during the reported quarter.

Outlook

Given the continuous growth of unconventional gas and oil-directed drilling in the U.S., Baker Hughes foresees North America as the key potential area. We also believe the company is favorably positioned to benefit from the current trends in oilfield services, given improving operator spending and greater need for stimulation and completion of services in North America. The company also expects the ongoing economic recovery to result in higher oil demand and provide support to higher crude prices.

Following the suspension of the moratorium in the U.S. Gulf of Mexico (GoM), companies in the offshore oil industry are trying to enhance their deepwater assignments. Consequently, the fourth quarter also benefited from increased share of the incremental workover as well as from the completion activity. The company also has a very competitive set of technologies, which allows it to continue its activity in the deepwater GoM.

However, a delay in permit approval for deepwater and shelf drilling in the GoM continues to remain a concern. Baker Hughes does not expect significant price leverage in its international markets until late 2011.

Our Neutral recommendation for the stock remains unchanged at this stage and the company holds a Zacks #3 Rank (short-term Hold rating).

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