Baker Hughes (BKR) 23Q3 Update

BKR reported 23Q3 GAAP diluted EPS of $0.51 vs. a loss of $0.02 a year ago and my estimate of $0.35.  Non-GAAP EPS was $0.42 compared with $0.26 last year and my estimate of $0.35.  Revenues of $6.64 billion rose 23.7% vs. 22Q3, 3.3% better than my projections. Orders of $8.5 billion were up 13.9% sequentially and 40.4% YOY.  The excess in GAAP earnings vs. my projections was due mostly to an increase in operating income and fair value gains on investments.  BKR delivered $592 million of free cash flow in the quarter, compared with 22Q3’s $417 million.

Management remains optimistic in its outlook for the remainder of 2023 and beyond; but it is maintaining a watchful eye on the discipline exhibited by the world’s largest oil & gas producers, the economic outlook and geopolitical risk.  While commodity prices may remain volatile, management believes that spending by upstream producers will remain resilient.  BKR’s long-cycle LNG equipment business is having another great year.  Strong demand for LNG may extend the upcycle through the end of the decade.

Based upon 23Q3 results, BKR has raised the low end and narrowed its guidance ranges.  It now anticipates revenue of $25.4-$25.8 billion and adjusted EBITDA of $3.7-$3.8 billion.  I now project 2023 GAAP EPS of $1.91, up from $1.74 previously, and non-GAAP EPS of $1.56, unchanged from my previous estimate.  For 2024, my forecast calls for revenues up 10.8%, GAAP EPS of $1.97 (up from $1.76) and non-GAAP EPS of $2.02 (up from $1.99).

Since my last report, BKR’s stock has fallen 2.3%, in line with large cap peers, but better than the 6.2% declines in the S&P 500 and OSX.  At the current price of $34.84, it is valued at 17.7 times projected 2024 GAAP EPS and 17.2 times projected 2024 non-GAAP EPS.  Despite the solid quarterly performance and favorable outlook, the stock continues to be valued at multiples well above its peer group which probably limits its upside.  I am increasing my price target from $34 to $36, which represents a one-year forward multiple of about 18 times projected 2024 GAAP and non-GAAP earnings.  That equates to a potential return of just under 6%, including the stock’s 2.3% dividend yield.  Consequently, I am maintaining my neutral performance rating on the stock.  Even so, BKR’s solid 23Q3 performance along with a higher risk of supply disruptions suggests to me that the stock’s bias is tilted more to the upside.

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.

November 8, 2023 (Originally published on November 1, 2023)

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

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