BKR reported 24Q2 GAAP diluted EPS of $0.58 vs. 23Q2’s $0.40 and my estimate of $0.47. Non-GAAP EPS was $0.57 compared with $0.39 last year and my estimate of $0.48. Revenues of $7.5 billion rose 13.1% vs. 23Q2, and were 4.8% above my projections. Orders of $7.53 billion rose 0.7% YOY, with a doubling of Climate Technology Solutions orders (off of a low base) offsetting slight declines in OFSE and Gas Technology. Adjusted EBITDA was $1.13 billion, up from $907 million in 23Q2. Adjusted EBITDA margin improved by 140 bp to 15.8%. Free cash flow was $106 million vs. $623 million in 23Q2.
24Q2 adjusted EBITDA was above the high end of management’s guidance range and 8.3% above my projections. On a GAAP basis, operating income increased 62.1% to $833 million, but this was partially offset by a 76.0% decline in other non-operating income to $38 million (from $158 million), due to a $129 million decline from the change in fair value of equity investments.
Despite the stronger than expected performance, management has left its 2024 guidance unchanged. It expects revenues of $26.5-$28.5 billion, up 3.9%-11.7%, and adjusted EBITDA of $4.1-$4.5 billion vs. 2023’s $3.8 billion. Even so, I have raised my 2024 earnings projections again, bringing them to the top of the guidance range. I have also raised my 2025 earnings projections modestly (by $0.18 per share).
Since my last report (4/29), BKR’s stock has risen 15.4%, better than the gains of 6.8% in the S&P 500 and the loss of 0.4% in the OSX (PHLX Oil Service Index). At the current price of $37.69, BKR is valued at 16.2 times my projected 2024 EPS estimates (GAAP and non-GAAP), a wider premium to the peer group average of 13.1 times. The stock is also valued at 14.8 times projected 2025 GAAP EPS of $2.53 and 14.4 times 2025 non-GAAP EPS of $2.59. I am raising my price target from $37 to $40, which anticipates a one-year forward multiple of 15.8 times projected 2025 GAAP earnings, slightly below the current one-year forward multiple of 16.2 times. That results in a potential return of 7%, including the stock’s 2.2% dividend yield. Thus, I am lowering my performance rating from “2” (Outperform) to “3” (Neutral).
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.
August 7, 2024 (Report published on August 1, 2024.)
Stephen P. Percoco
Lark Research
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© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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