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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 60 days.

Factors Driving the Stock

Favorable Style Score

Baker Hughes is well-poised for progress, as evidenced by its impressive VGM Score of A. Here, V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of all three factors.

Robust Outlook

The Zacks Consensus Estimate for BKR’s 2024 earnings is pegged at $2.09 per share, suggesting growth of 30.6% from the year-ago reported figure. The same for revenues is pinned at $27.6 billion, implying a rise of 8%.

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The consensus mark for 2025 earnings is pegged at $2.61 per share, indicating a year-over-year improvement of 24.6%. The same for revenues is pinned at $29.4 billion, hinting at a 7% increase.

Impressive Earnings Surprise History

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

Optimistic Outlook for 2024

Baker Hughes anticipates 2024 revenues to be $26.5-$28.5 billion, which indicates growth of at least 7.8% from the 2023 reported figure.

Adjusted EBITDA is expected to be $4.1-$4.5 billion, which implies growth of 13.2% from the 2023 reported figure.

Key Business Tailwinds

Baker Hughes achieved outstanding financial results in 2023, setting records for orders and revenues. Orders grew 14% year over year to $30.5 billion, whereas revenues increased 21% to $25.5 billion. The adjusted EBITDA margin rose to 14.8%, reflecting effective cost management and operational efficiency. This steady financial improvement, bolstered by high-margin segments like Industrial & Energy Technology, makes a strong case for investment due to the potential for continued revenue and profitability growth.

The company is strategically positioned in high-growth sectors, such as LNG and clean energy solutions, which are anticipated to experience increased demand due to global energy transitions. Baker Hughes secured $170 million in new energy orders in the fourth quarter of 2023, particularly in clean power and emissions management, positioning it well to take advantage of future market trends and regulatory shifts toward greener energy solutions.

The company excelled in generating a free cash flow, with an impressive 83% year-over-year increase in 2023 to $2 billion. This strong cash flow performance boosts its capacity to invest in growth opportunities, pay dividends and conduct share buybacks, which are appealing attributes for investors looking for both growth and yield.

BKR is making substantial investments in technology and innovation, as demonstrated by an 18% year-over-year increase in R&D spending in 2023. These investments are focused on areas, such as carbon capture, utilization and storage, hydrogen, geothermal, and clean power. This strategy not only aligns Baker Hughes with future energy market directions but also enhances its competitive advantage and long-term sustainability.

The company maintains a solid balance sheet with a net debt-to-adjusted EBITDA ratio of 0.9X and a total liquidity of $5.6 billion as of the end of 2023. BKR also returned $1.3 billion to shareholders in 2023 through dividends and buybacks, highlighting its commitment to shareholder value and ensuring 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. The Zacks Rank #3 (Hold) company’s beta of 1.43 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 stocks like Archrock Inc. AROC, Sunoco LP SUN and Matador Resources Company MTDR, each currently sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archrock is an energy infrastructure company based in the United States with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.

The Zacks Consensus Estimate for AROC’s 2024 and 2025 EPS is pegged at $1.07 and $1.23, respectively. The company has a Zacks Style Score of A for Growth. It has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 60 days.

Sunoco is a leading wholesale motor fuel distributor in the United States, boasting a vast distribution network spanning 40 states. With long-term contracts servicing more than 10,000 convenience stores, it distributes more than 10 fuel brands, ensuring a stable revenue stream. SUN currently has a Value Score of A.

The Zacks Consensus Estimate for 2024 and 2025 earnings per unit is pegged at $7.29 and $7.17, respectively. The partnership has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days. The company has a Zacks Style Score of A for Value and Growth.

Matador Resources’ upstream operations are primarily concentrated in the Delaware Basin, which is among the United States' most prolific oil and gas regions. The company has demonstrated a consistent upward trend in total production since 2019.

The Zacks Consensus Estimate for MTDR’s 2024 and 2025 EPS is pegged at $7.90 and $9.59, respectively. The company has a Zacks Style Score of A for Momentum and B for Value. It has witnessed upward earnings estimate revisions for 2024 and 2025 in the past seven days.

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Sunoco LP (SUN) : Free Stock Analysis Report

Baker Hughes Company (BKR) : Free Stock Analysis Report

Matador Resources Company (MTDR) : Free Stock Analysis Report

Archrock, Inc. (AROC) : Free Stock Analysis Report

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