BKR reported 23Q4 GAAP diluted EPS of $0.45 vs. 23Q1’s $0.57 and my estimate of $0.34. Non-GAAP EPS was $0.43 compared with $0.28 last year and my estimate of $0.35. Revenues of $6.42 billion rose 12.3% vs. 23Q1, and matched my projections. Orders of $6.5 billion fell 14.3% YOY, due to declines across all segments. Adjusted EBITDA was $943 million, up from $782 million in 23Q1. Adjusted EBITDA margin improved by 100 bp to 14.7%. Free cash flow was $498 million vs. $177 million in 23Q1.
Adjusted EBITDA was above the median of management’s 24Q1 guidance range. My projections, on the other hand, were at the low end of guidance. On a GAAP basis, operating income increased 9.2% to $5.8 billion, but this was more than offset by a 92.5% decline in other non-operating income to $29 million (from $386 million in 23Q1). Last year’s non-operating income included a $386 million gain from the change in fair value of equity investments (presumably BKR’s investment in C3.ai (NYSE:AI)). This gain was treated as a specified item in the calculation of adjusted (non-GAAP) EPS.
Management has left its 2024 guidance unchanged. It expects revenues of $26.5-$28.5 billion in revenues, up 3.9%-11.7%, and adjusted EBITDA of $4.1-$4.5 billion vs. 2023’s $3.8 billion. Based upon the stronger than anticipated performance, I have raised my 2024 earnings projections, which remain in line with management’s guidance, and also my earnings projections for 2025. Since my last report (2/23), BKR’s stock has advanced 12.5%, better than the gains of 0.3% in the S&P 500 and 8.8% in the OSX (PHLX Oil Service Index). At the current price of $32.84, it is valued at 16.4 times projected 2024 GAAP EPS of $2.00 and 14.0 times projected 2025 GAAP EPS of $2.35. Although the stock trades at a premium to peers, I am raising my price target from $34 to $37, which anticipates a one-year forward multiple of 15.7 times projected 2025 GAAP earnings, modestly below the current one-year forward multiple of 16.4 times. That equates to a potential return of 15%, including the stock’s 2.6% dividend yield. Thus, I am lowering my performance rating from “1” (Buy) to “2” (Outperform).
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 directly using the contact information provided below.
May 15, 2024 (Report originally published on April 29, 2024.)
Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250
admin@larkresearch.com
© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
This blog post (as with all posts on this website) represents the opinion of Lark Research based upon its own independent research and supporting information obtained from various sources. Although Lark Research believes these sources to be reliable, it has not independently confirmed their accuracy. Consequently, this blog post may contain errors and omissions. Furthermore, this blog post is a summary of a recent report published on this subject and that report provides a more complete discussion and assessment of the risks and opportunities of any investment securities discussed herein. No representation or warranty is expressed or implied by the publication of this blog post. This blog post is for informational purposes only and shall not be construed as investment advice that meets the specific needs of any investor. Investors should, in consultation with their financial advisers, determine the suitability of the post’s recommendations, if any, to their own specific circumstances. Lark Research is not registered as an investment adviser with the Securities and Exchange Commission, pursuant to exemptions provided in the Investment Company Act of 1940. This blog post remains the property of Lark Research and may not be reproduced, copied or similarly disseminated, in whole or in part, without its prior written consent.