Baker Hughes (BKR) 23Q4 Update

BKR reported 23Q4 GAAP diluted EPS of $0.43 vs. 22Q4’s $0.18 and my estimate of $0.43.  Non-GAAP EPS was $0.51 compared with $0.18 last year and my estimate of $0.47.  Revenues of $6.84 billion rose 15.7% vs. 22Q4, in line with my projections. Orders of $6.9 billion fell 13.8% YOY, due to a 47% drop in Gas Technology Equipment (GTE) orders.  Free cash flow was $633 million vs. $657 million in 22Q4.

There was an unexpected oil & gas inventory build at year-end from a combination of weaker demand and strong production growth.  However, prices remain high enough to support growth in BKR’s core Oilfield Services & Equipment market.  In the Industrial Energy & Technology business, the recent moratorium on new LNG terminals set by the Biden administration coupled with a likely decline in global capacity utilization in 2024 may temper demand for new projects going forward.  Owing to its high backlog, as evidenced by the 20.5% YOY increase in its remaining performance obligation (RPO), BKR’s business should remain solid in 2024 and into 2025; but there are concerns about whether it will remain so later in 2025 and beyond.  Still, management has highlighted other areas where it can achieve growth going forward, including the offshore and new energy.  It still sees an upside bias to the oil & gas market, given years of underinvestment and the need to maintain fossil fuel production during the energy transition.

Management has set 2024 guidance of $26.5-$28.5 billion in revenues, up 3.9%-11.7%, and adjusted EBITDA of $3.7-$3.8 billion vs. 2023’s $3.8 billion.  My projections are in line with that guidance.

Since my last report, BKR’s stock has fallen 16.2%, much worse than the S&P 500’s 20.0% advance and also worse than the OSX’s 5.9% decline.  The stock had outperformed its peer group for most of the past two years, so it is not so troubling to see it underperform now.  At the current price of $29.20, it is valued at 15.8 times projected 2024 GAAP EPS of $1.85 and 13.0 times projected 2025 GAAP EPS of $2.20. Based upon the recent weakness in both the stock and the energy sector, I am lowering my price target from $36 to $34, which equates to a projected one-year forward multiple of 15.5 times projected 2025 GAAP earnings (in line with the current forward multiple).  That equates to a potential return of 19%, including the stock’s 2.9% dividend yield.  Consequently, I am raising my performance rating on the stock from “3” (Neutral) to “1” (Buy).

This is a summary of my recent update report on Baker Hughes Company (BKR). To obtain a copy of the full report, please reach out to me using the contact information provided below.

February 26, 2024. (Report published on February 23, 2024.)

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

© 2015-2024 by Stephen P. Percoco, Lark Research.   All rights reserved.

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