Baker Hughes (BKR) 22Q3 Update

BKR reported a 22Q3 GAAP net loss of $0.02 per share vs. 21Q3’s profit of $0.01.  Non-GAAP adjusted EPS was $0.26 vs. $0.16.  I had anticipated 22Q3 GAAP EPS of $0.18 and Non-GAAP EPS of $0.30.  BKR’s 22Q3 non-GAAP EPS exceeded the consensus estimate by a penny.

Higher restructuring costs, associated primarily with the company’s recent decision to streamline its operations by combining its four business segments into two, reducing its executive ranks by 25% and rationalizing its global operating footprint, along with a much higher than anticipated tax rate explained most of the shortfall from my projections.  Offsetting part of these declines was the stronger-than-expected performance of its Oilfield Services (OFS) business.

Oil and natural gas prices were down in 22Q3 and futures markets anticipate further declines in oil prices.  While acknowledging that commodity prices may be volatile, BKR believes that the energy markets will remain resilient, buoyed by long-term global demand growth expectations and the multi-year underinvestment in upstream infrastructure.

After incorporating 22Q3 results into my projection model and tweaking some assumptions, I now anticipate a full year 2022 GAAP loss of $0.50 per share and adjusted EPS of $0.94 and 2023 GAAP EPS of $0.98 and non-GAAP EPS of $1.48.  My earnings projections appear to be moderately above Street expectations for 2022 and below views for 2023.

Since initiating coverage on BKR on Sept. 14, the stock has indeed been volatile, but it closed yesterday at $26.13, up 2.9% from my last report.  That compares with a 3.8% decline in the S&P 500.  Although downside risks appear to have risen in recent weeks, I am maintaining my performance rating of “2” (outperform) on the stock and price target of $28.50.  Along with the 2.8% dividend yield, the price target now represents a potential total return of 11.8%.

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

October 27, 2022

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

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