Baker Hughes Co. (BKR, Financial) provides technology and services to energy and industrial companies globally. It has historically operated through four segments: Oilfield Services, Oilfield Equipment, Turbomachinery & Process Solutions and Digital Solutions.
According to the company’s website, the OFS segment “provides products and services for onshore and offshore operations throughout the life cycle of a well, from drilling, appraisal, completion, production and intervention”. He also said that the OFE segment designs and manufactures subsea and surface drilling and production systems.
Regarding the TPS segment, the company notes on its website that it provides equipment and services for mechanical drive, compression and power generation applications in the power industry.
Finally, Baker Hughes said the DS segment “combines sophisticated hardware technologies with enterprise-class software products and analytics to connect industrial assets, providing customers with the data, security and safety needed to improve operations in a meaningful way.” reliable and efficient.
However, the company recently consolidated these units into two main businesses: Oilfield Services & Equipment and Industrial & Energy Technology. This reorganization should result in savings of approximately $150 million.
Formerly part of General Electric (GE, Financial), the company changed its name to Baker Hughes in October 2019. The company currently has a market capitalization of $24.3 billion.
In July, the company announced somewhat mixed second-quarter results. Orders were up 15% year over year, but down 14% sequentially. Revenue of $5 billion decreased 2% year over year, but increased 4% sequentially. Adjusted operating income increased 13% to $376 million from the same period a year earlier. Adjusted EBITDA of $651 million increased 6% from a year ago.
The company discussed the now common challenges of component shortages and supply chain inflation, as well as the suspension of Russian operations. Russia produces around 14% of the world’s oil and gas supply.
Baker Hughes maintains a relatively secure balance sheet with $2.9 billion in cash and $6.6 billion in total debt. With nearly $3 billion in estimated Ebitda this year, the company’s debt ratio is around 1.2 times.
Analyst consensus estimates for earnings per share are $1 for 2022 and $1.72 for 2023, creating a forward price-to-earnings ratio of 14. The company is currently selling at an enterprise value ratio /Ebitda forward of around 7.5 times.
The GuruFocus discounted cash flow calculator creates a value of $30 using next year’s earnings per share estimate as a starting point and a 10-year growth rate of 10%.
The company pays an annualized dividend of 72 cents, which currently equates to a dividend yield of 2.85%.
Gurus who have recently bought shares of Baker Hughes include
Ray Dalio (Businesses, Portfolio) and
Ken Fisher (Trades, Portfolio), while gurus who have reduced or sold their holdings include
Jeremy Grantham (Businesses, Portfolio) and Dodge & Cox.
The company offered a bleak but optimistic long-term trade forecast saying:
“As we look to the second half of 2022 and into 2023, oil markets face an unusual set of circumstances and challenges. On the one hand, the demand outlook for the next 12 to 18 months are deteriorating, as inflation erodes consumers’ purchasing power and central banks aggressively raise interest rates to fight inflation.On the other hand, due to years of underinvestment in globally and the potential need to replace Russian barrels, broader supply constraints can realistically keep commodity prices high even in a moderate demand destruction scenario. we believe the outlook for oil prices remains volatile, but continues to support elevated levels of activity as higher spending is needed to reorganize the energy map m and likely offset demand destruction under most recessionary scenarios.
The company should benefit from its recent reorganization into two business groups, which should improve operations. Additionally, there appears to be a multi-year upstream spending cycle ahead of it, which should provide tailwinds.