Baker Hughes (BKR) 24Q1 Update

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 (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

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

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