Companies would do well to follow one of the fundamental precepts of medical ethics - "primum non nocere" (first do no harm). While there is little that any one company can do about the overall demand environment in a given quarter or year, there's a lot that can be done to at least minimize the damage. In the case of Baker Hughes (NYSE:BHI), it looks like a lot of the operating issues and missteps that bedeviled recent quarters have improved, and while the near-term outlook for energy services is not great, there's value here nonetheless.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Relief in Second Quarter
Baker Hughes delivered a very welcome positive surprise with the second quarter results. While the company is likely to continue to face a tough operating environment for the rest of the year, it would at least seem that the worst-case scenarios are much less likely.

Revenue rose 12% from last year, but fell 1% sequentially as North American performance continues to deteriorate (down 7%) on weak gas activity, but international (up 6%) continues to grow. Although Baker Hughes doesn't go into exceptional detail with its quarterly operations, it does sound as though areas of business like artificial lift (electric submersible pumps, in the case of Baker Hughes) are picking up.

Where Baker Hughes really overachieved was on the margin side of things. Operating income actually rose 2% this quarter, and while North American margins were down sequentially (by about 60 basis points), the company delivered much better results than many had feared (analysts' estimates were in the range of 11% and some feared even worse).

SEE: Understanding The Income Statement

Internal Improvement Vs. Tough Operating Environment
Baker Hughes' strong second quarter performance needs to be kept in context. Schlumberger's (NYSE:SLB) North American margins are much, much better, as are those of Halliburton (NYSE:HAL). The improvements at Baker Hughes really aren't about surpassing its peer group, but rather more of a cessation of self-inflicted wounds. That's a good thing, to be sure, but there's still more work to do.

Baker Hughes seemed relatively constructive about the rest of the year, guiding to a 3% year on year growth in North American rigs. All of that said, it's not smooth sailing yet in North America. Natural gas activity in North America is still underwhelming and if global economic growth worries weigh further on oil prices, which certainly won't help matters.

Still Growth to Be Had
The issue with buying Baker Hughes today really has a lot to do with an investor's short-term pain threshold. Things could get a lot worse, and the stock prices of significant gas players like Chesapeake (NYSE:CHK) and Ultra Petroleum (NYSE:UPL) don't reflect a lot of optimism.

Longer term, though, this seems like an industry where investors should want to be. Not only can Baker Hughes grow with overall service demand, but further penetration of electric submersible pumps (where Baker Hughes is the leader ahead of Schlumberger) over the rod pump technology sold by Weatherford (NYSE:WFT) and Lufkin (Nasdaq:LUFK) could offer incremental upside.

SEE: 5 Must-Have Metrics For Value Investors

The Bottom Line
I still like the businesses of Cameron (NYSE:CAM) and National Oilwell Varco (NYSE:NOV) better, and I think Basic Energy Services (NYSE:BAS) is an interesting beaten-down name to consider. All of that said, Baker Hughes looks undervalued. Even at a forward EV/EBITDA multiple of two-thirds to three-quarters of the historical average, these shares look as though they ought to trade closer to $60 per share. As I said, there's still a risk of significant short-term pain, but today's price doesn't look like a bad entry point for a long-term holding.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.