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Here's Why Hold Strategy is Apt for Baker Hughes' (BKR) Stock

Baker Hughes Company BKR has witnessed upward earnings estimate revisions for 2024 and 2025 in the past seven days.

The stock, currently carrying a Zacks Rank #3 (Hold), has rallied 9.8% in the past year.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Factors Driving the Stock

Favorable Style Score

Baker Hughes has an impressive Value Score of B and a Growth Score of B. Value Score helps find stocks that are undervalued. Back-tested results have shown that stocks with a favorable Value Score, combined with a solid Zacks Rank, are the best investment bets. On the other hand, the Growth Score assesses stocks by analyzing their financial statements, including the income statement, statement of cash flows and balance sheet, among others.

Robust Outlook

The Zacks Consensus Estimate for BKR’s 2024 earnings is pegged at $2.07 per share, suggesting growth of 29.4%, while the same for revenues is $27.5 billion, implying a rise of 8% from the year-ago reported figure.

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The consensus mark for 2025 earnings is pegged at $2.62 per share, indicating an improvement of 26%, while the same for revenues is $30 billion, hinting at a 7.3% increase year over year.

Impressive Earnings Surprise History

Baker Hughes’ bottom line outpaced estimates in each of the trailing four quarters, the average surprise being 11.4%.

Key Business Tailwinds

Baker Hughes delivered a robust financial performance in 2023 with record orders and revenues. Orders increased 14% year over year increase to $30.5 billion, while revenues rose 21% to $25.5 billion. The adjusted EBITDA margin improved to 14.8%, indicating effective cost management and operational efficiency. This consistent financial growth, supported by high-margin segments like Industrial & Energy Technology (IET), presents a compelling case for investment due to the potential for sustained revenue and profitability expansion.

The company is strategically positioned in high-growth areas such as LNG and clean energy solutions, which are expected to see increased demand due to global energy transitions. For instance, Baker Hughes booked approximately $170 million in new energy orders in the fourth quarter of 2023, particularly in clean power and emissions management, positioning it well to capitalize on future market trends and regulatory shifts toward greener energy solutions.

Baker Hughes excelled in generating free cash flow, with a remarkable 83% year-over-year increase in 2023, amounting to $2.045 billion. This strong cash flow performance enhances the company’s ability to invest in growth opportunities, pay dividends and undertake share buybacks, all of which are attractive attributes for investors seeking both growth and yield.

The company is heavily investing in technology and innovation, as evidenced by its R&D investment increase of 18% year over year in 2023. These investments are focused on areas like carbon capture, utilization and storage (CCUS), hydrogen, geothermal, and clean power. This not only aligns Baker Hughes with future energy market directions but also enhances its competitive edge and long-term sustainability.

Baker Hughes maintains a strong balance sheet with a net debt-to-adjusted EBITDA ratio of 0.9x and total liquidity of $5.6 billion as of the end of 2023. The firm also returned $1.3 billion to shareholders in 2023 through dividends and buybacks, underscoring its commitment to shareholder value and maintaining its financial health to sustain returns.

Risks

Oil and gas companies are highly exposed to commodity price fluctuations, thereby making business for oilfield service providers extremely volatile. This is because oilfield service players like Baker Hughes help upstream energy players efficiently set up oil and gas wells. Baker Hughes’ beta of 1.42 further confirms that the company experiences greater volatility than the broader market.

Stocks to Consider

Investors interested in the energy sector may look at some better-ranked companies mentioned below, each presently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Global Partners GLP is a leading operator of gasoline stations and convenience stores. Over the past 60 days, GLP has witnessed upward earnings estimate revisions for 2024 and 2025, respectively.

The Zacks Consensus Estimate for Global Partners’ 2024 and 2025 EPS is pegged at $3.90 and $4.47, respectively. GLP currently has a Value Score of A.

SM Energy Company SM is an independent oil and gas company engaged in the exploration, exploitation, development, acquisition and production of oil and gas in North America. SM currently has a Momentum Score of B and a Value Score of B.

The Zacks Consensus Estimate for SM’s 2024 and 2025 EPS is pegged at $6.15 and $6.73, respectively. The stock has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days.

Enerplus Corporation ERF is an independent oil and gas production company with resources across Western Canada and the United States. ERF currently has a Momentum Score of B.

Enerplus has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days. The consensus estimate for ERF’s 2024 and 2025 earnings per share is pegged at $2.06 and $2.36, respectively.

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SM Energy Company (SM) : Free Stock Analysis Report

Global Partners LP (GLP) : Free Stock Analysis Report

Enerplus Corporation (ERF) : Free Stock Analysis Report

Baker Hughes Company (BKR) : Free Stock Analysis Report

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