Baker Hughes (BKR) 23Q1 Update Report

BKR reported 23Q1 GAAP EPS of $0.57 vs. $0.08 a year ago and my estimate of $0.19.  Non-GAAP EPS was $0.28 compared with $0.15 last year and my estimate of $0.29.  Revenues of $5.7 billion rose 18.2% vs. 22Q1, 4% better than my projections. Orders of $7.6 billion were down 5% sequentially but up 12% YOY.  The excess in GAAP earnings vs. my projections was due entirely to gains on equity investments, specifically strong recoveries in the fair values of its investments in and ADNOC.  The company delivered $177 million of free cash flow in the quarter, compared with 22Q1’s free cash burn of $147 million (before acquisition expenditures).

Management remains optimistic in its outlook for 2023, despite concerns about the impact of a potential economic downturn on the energy industry.  Its diverse product portfolio includes the long cycle LNG equipment business, which gives it greater ability to manage successfully through the business cycle.

BKR’s 2023 guidance, which is unchanged, anticipates revenue of $24-$26 billion, up 13%-23%; adjusted EBITDA of $3.6-$3.8 billion, up 20%-25%; corporate costs of $370-$390 million, down 4% at the midpoint, and an adjusted effective tax rate of 35%-40%.  Based upon that guidance, updated for 23Q1 results, I project 2023 GAAP EPS of $1.56 and non-GAAP EPS of $1.45.  For 2024, I forecast revenues up 10.8%, GAAP EPS of $1.63 and non-GAAP EPS of $1.85. Since my last report, BKR’s stock has fallen 12.7%, underperforming the S&P 500 but outperforming its peer group.  At the current price of $28.17, its stock is valued at 18.0 times projected 2023 GAAP EPS and 17.3 times projected 2024 non-GAAP EPS, which is more in line with the broader market but still above peer averages (i.e. HAL, NOV, SLB).  Based upon an assumed one-year forward multiple of 18.4 (which is below the current one-year forward multiple of 19.4) multiplied by projected 2024 non-GAAP earnings of $1.85, my price target is $34, unchanged from my previous report.  Since the stock is down, however, BKR’s potential total return is now 23.4%, including the stock’s 2.7% dividend yield.  Accordingly, I am raising my performance rating on the stock from “3” (Neutral) to “1” (Strong 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.

May 23, 2023

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

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