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Baker Hughes (BKR) Up 15% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Baker Hughes (BKR). Shares have added about 15% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Baker Hughes due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Baker Hughes Q3 Earnings Beat Estimates, Revenue Miss

Baker Hughes reported third-quarter 2022 adjusted earnings of 26 cents per share, beating the Zacks Consensus Estimate by a penny. The bottom line improved from the year-ago quarter’s earnings of 16 cents per share.

Total quarterly revenues of $5,369 million missed the Zacks Consensus Estimate of $5,447 million. However, the top line increased from the year-ago quarter’s $5,093 million.

The strong quarterly earnings were primarily driven by higher contributions from the Oilfield Services business unit.

Segmental Performance

Revenues from the Oilfield Services unit amounted to $2,842 million, up 17% from the year-ago quarter’s $2,419 million. Baker Hughes’ operating income from the segment was $330 million, up from $190 million reported in third-quarter 2021, backed by higher volumes and prices.

Revenues of Baker Hughes from the Oilfield Equipment unit totaled $561 million, down 7% from the prior-year quarter’s $603 million. The segment was affected by a decline in volumes in Baker Hughes’ Subsea Productions Systems and the removal of Subsea Drilling Services. Increased volumes in Flexibles, Services and Surface Pressure Control partially offset the negatives. The segment has reported a loss of $6 million, whereas it reported a profit of $14 million in third-quarter 2021.

Revenues of Baker Hughes from the Turbomachinery & Process Solutions unit declined to $1,438 million from $1,562 million a year ago due to a dip in equipment and project volumes. The segmental income of Baker Hughes decreased to $262 million from $278 million in the third quarter of 2021, owing to lower service revenues.

Revenues of Baker Hughes from the Digital Solutions segment amounted to $528 million, up from $510 million in the year-ago quarter due to higher volume across all product lines. The operating profit of Baker Hughes in the segment totaled $20 million, down 22% from the year-ago quarter’s $26 million. The segment was affected by a decline in cost productivity and inflation pressures.

Costs and Expenses

Baker Hughes recorded total costs and expenses of $5,100 million in the third quarter, up from the year-ago quarter’s $4,715 million.

Orders

Total orders of the company from all business segments in third-quarter 2022 amounted to $6,063 million, up 13% year over year due to higher order intakes from segments like Turbomachinery & Process Solutions, Oilfield Equipment, Oilfield Services, and Digital Solutions.

Free Cash Flow

Baker Hughes generated a free cash flow of $417 million in the reported quarter compared with $305 million in the year-ago period.

Capex & Balance Sheet

Baker Hughes’ net capital expenditure in the third quarter totaled $180 million.

As of Sept 30, 2022, Baker Hughes had cash and cash equivalents of $2,851 million. At the third-quarter end, the company had a long-term debt of $6,612 million, marking a debt-to-capitalization of 31.7%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Baker Hughes has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Baker Hughes has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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