Introduction
Baker Hughes (NASDAQ: BKR) is one of the world's largest providers of oilfield services, products, systems, and digital solutions for the oil and gas industry. The company operates in over 120 countries and employs more than 55,000 people. It also offers a range of industrial and energy technology solutions for various sectors such as power generation, aerospace, chemicals, and renewables.
Baker Hughes has been undergoing a strategic transformation in recent years, aiming to diversify its portfolio, reduce its exposure to the cyclical and volatile oil market, and capitalize on the opportunities in the energy transition. The company has also been investing in innovation, digitalization, and sustainability to enhance its competitive edge and create long-term value for its shareholders.
Baker Hughes Company's Overview
Source: Wikipedia
Baker Hughes was founded in 1907 by Reuben C. Baker, who patented a casing shoe for oil wells. The company merged with Hughes Tool Company in 1987, creating one of the largest oilfield service providers in the world. In 2017, Baker Hughes merged with GE Oil & Gas, forming Baker Hughes, a GE company (BHGE). In 2019, GE reduced its stake in BHGE to below 50%, making it an independent company again. The company rebranded itself as Baker Hughes Company in 2020.
Baker Hughes is headquartered in Houston, Texas, and has four main business segments:
- Oilfield Services (OFS): This segment provides products and services for drilling, evaluation, completion, production, and intervention of oil and natural gas wells.
- Oilfield Equipment (OFE): This segment provides products and services for subsea production systems, floating production systems, capital drilling equipment, and flexible pipeline systems.
- Turbomachinery & Process Solutions (TPS): This segment provides products and services for rotating equipment.
- Digital Solutions (DS): This segment provides software and hardware solutions for data analytics, artificial intelligence (AI), machine learning (ML), etc.
Baker Hughes is led by Lorenzo Simonelli, who has been the chairman and chief executive officer since 2017. Simonelli joined GE in 1994 and held various leadership roles in GE Oil & Gas before becoming the president and CEO of GE Oil & Gas in 2013.
Some of the top shareholders of Baker Hughes include GE (36.8%), Vanguard Group (8.2%), BlackRock (6.9%), State Street (4.4%), and Capital Research Global Investors (3%).
Baker Hughes has achieved several milestones in its history, such as:
- Launching the first full stream offering for the oil and gas industry in 2017.
- Becoming the first energy technology company to commit to net-zero carbon emissions by 2050 in 2019.
- Launching LUMEN Terrain - a wireless underground sensing system - in 2020.
Source: Upstream
Baker Hughes Company's Business Model and Products/Services
How Baker Hughes makes money
Baker Hughes generates revenue from selling products and services to customers in the oil and gas industry as well as other industrial and energy sectors. The company's revenue is derived from three main sources:
- Equipment sales: This includes selling equipment such as subsea systems, turbomachinery units, drilling rigs, and valves.
- Services: This includes providing services such as installation, maintenance, repair, upgrades, and digital solutions for equipment and systems.
- Long-term contracts: This includes entering into long-term agreements with customers for providing equipment and services over some time, such as production sharing contracts, service contracts, and joint ventures.
Baker Hughes' revenue is also influenced by several factors, such as:
- Oil and gas prices
- Oil and gas activity
- Market share
- Diversification
Main Products and Services
Baker Hughes offers a wide range of products and services for the oil and gas industry as well as other industrial and energy sectors. Some of the main products and services are:
- Drilling Services: Advanced drilling technologies and tools for efficient and safe well construction.
- Reservoir Evaluation: Solutions for reservoir characterization, monitoring, and analysis to optimize production.
- Well Construction: Services for designing and constructing wells that maximize productivity and minimize risk.
- Production Optimization: Integrated production solutions to enhance efficiency and asset performance.
- Digital Solutions: Cutting-edge digital technologies for data analytics, remote monitoring, and automation.
Baker Hughes Company's Financials, Growth, and Valuation Metrics
Source: CyberTechz
Review of Baker Hughes Company's financial statements
Baker Hughes' financial position as of June 30, 2023, was as follows:
- Market capitalization: The company's market capitalization (the total value of its outstanding shares) as of June 30, 2023, was $23.4 billion, based on a closing stock price of $21.65 per share.
- Net income: The company's net income attributable to Baker Hughes for the first half of 2023 was $345 million, up 138% from $145 million in the first half of 2022.
- Revenue: The company's revenue for the first half of 2023 was $9.8 billion, up 9% from $9 billion in the first half of 2022.
- Profit margins: The company's profit margins (the ratio of net income to revenue) for the first half of 2023 were 3.5%, up from 1.6% in the first half of 2022.
- Return on equity: The company's return on equity (the ratio of net income to shareholders' equity) for the first half of 2023 was 4.1%, up from 1.8% in the first half of 2022.
- Balance sheet strength and implications: The company's balance sheet as of June 30, 2023, showed the following:
- Cash and cash equivalents: The company had $3.4 billion of cash and cash equivalents, up from $3 billion as of December 31, 2022.
- Debt: The company had $6.9 billion of total debt, down from $7.1 billion as of December 31, 2022.
- Net debt: The company had $3.5 billion of net debt (total debt minus cash and cash equivalents), down from $4.1 billion as of December 31, 2022.
- Net debt to EBITDA: The company had a net debt to EBITDA ratio (a measure of leverage) of 1.6x, down from 2x as of December 31, 2022.
The company's balance sheet strength indicates that it has sufficient liquidity and financial flexibility to fund its operations, investments, dividends, and debt repayments.
Key financial ratios and metrics
We can compare Baker Hughes' valuation multiples to its peers and the industry to determine if the stock is undervalued, fairly valued, or overvalued. According to Yahoo Finance, as of June 30, 2023, the average valuation multiples for Baker Hughes' peers and the industry were as follows:
|
Company |
P/E ratio |
P/S ratio |
P/B ratio |
EV/EBITDA ratio |
|
Baker Hughes |
30.3x |
0.6x |
1.4x |
11.2x |
|
Halliburton |
14x |
1.3x |
2.2x |
8.8x |
|
Schlumberger |
20.8x |
1.4x |
2.5x |
10.5x |
|
National Oilwell Varco |
13.5x |
1.2x |
2.1x |
8.2x |
|
Weatherford International |
12.2x |
0.9x |
1.7x |
7.2x |
As you can see, Baker Hughes' valuation multiples are all relatively low compared to its peers. This suggests that the market may be undervaluing the company. However, it is important to note that valuation multiples can vary depending on a number of factors, such as the company's growth prospects, profitability, and risk profile. Therefore, it is important to consider all of these factors when evaluating a company's valuation.
BKR Stock Performance Analysis
Source: TradingView
BKR Stock trading information
Baker Hughes stock trades on the Nasdaq Global Select Market under the ticker symbol BKR. The stock is also a component of several major indices, such as the S&P 500, the Nasdaq Composite, and the Nasdaq-100.
Baker Hughes' stock trading information as of June 30, 2023, was as follows:
- IPO Time: Baker Hughes went public in July 2017 as Baker Hughes, a GE company (BHGE), following the merger with GE Oil & Gas. The company issued 1.12 billion shares for $32.75 per share, raising $36.8 billion in gross proceeds.
- Primary Exchange & Ticker: The company's primary exchange is the Nasdaq Global Select Market, and its ticker symbol is BKR.
- Country & Currency: The company is based in the United States and its stock is denominated in U.S. dollars (USD).
- Trading hours: The company's stock trades from Monday to Friday, from 9:30 a.m. to 4:00 p.m. Eastern Time (ET), except on U.S. market holidays.
- Pre-market: The company's stock also trades in the pre-market session, from 4:00 a.m. to 9:30 a.m. ET, except on U.S. market holidays.
- After-market: The company's stock also trades in the after-market session, from 4:00 p.m. to 8:00 p.m. ET, except on U.S. market holidays.
- Stock splits: The company has not conducted any stock splits since its IPO in 2017.
- Dividends: The company pays quarterly dividends to its shareholders. The company's dividend for the second quarter of 2023 was $0.18 per share, representing a dividend yield of 3.3% based on the closing stock price of $21.65 per share as of June 30, 2023. The company has maintained or increased its dividend since its IPO in 2017.
BKR Stock Price Performance since its IPO
Baker Hughes' stock price performance since its IPO in July 2017 has been volatile and influenced by various factors, such as oil and gas prices, oil and gas activity, market conditions, earnings results, strategic initiatives, and competitive dynamics.
Baker Hughes' stock price performance since its IPO can be summarized as follows:
- Historical Highs and Lows: Baker Hughes stock price reached its all-time high of $37.76 per share on September 25, 2018, and its all-time low of $9.12 per share on March 18, 2020.
- Current Stock Price: Baker Hughes stock price closed at $21.65 per share on June 30, 2023, representing a decrease of 43% from its IPO price of $32.75 per share.
- Stock Price Volatility Analysis: Baker Hughes stock has exhibited high volatility since its IPO, as measured by its beta (a measure of systematic risk) of 1.8, which means that the stock is 80% more volatile than the market. The company's stock has also experienced significant price swings, as measured by its average true range (ATR) (a measure of price range) of $0.77, which means that the stock moves an average of $0.77 per day.
Source: TradingView
Key Drivers of BKR Stock Price
Some of the key drivers that have affected Baker Hughes' stock price since its IPO include:
- Oil and gas prices: Higher oil and gas prices have generally boosted Baker Hughes' stock price, as they indicate higher demand and spending for oilfield services and equipment.
- Oil and gas activity: Higher oil and gas activity levels have generally boosted Baker Hughes' stock price, as they indicate higher utilization and revenue for oilfield services and equipment.
- Market conditions: Favorable market conditions have generally boosted Baker Hughes' stock price, as they reflect positive investor sentiment and confidence in the energy sector.
- Earnings results: Strong earnings results have generally boosted Baker Hughes' stock price, as they indicate higher profitability and growth for the company.
- Strategic initiatives: Successful strategic initiatives have generally boosted Baker Hughes' stock price, as they indicate an improved competitive position and value creation for the company.
- Competitive dynamics: Favorable competitive dynamics have generally boosted Baker Hughes' stock price, as they indicate increased market share and differentiation for the company.
BKR Stock Price Forecast
Baker Hughes' stock price forecast can be based on various methods, such as trend analysis, such as trend analysis, technical analysis, fundamental analysis, and analyst recommendations. We will use some of these methods to provide a possible range of BKR stock price scenarios for the next 12 months.
BKR Stock Price Trend Analysis
Baker Hughes' stock price trend analysis can be based on its historical price movements, patterns, and indicators. We will use a simple moving average (SMA) (a measure of average price over a while) and a relative strength index (RSI) (a measure of price momentum over some time) to analyze the stock's trend.
- SMA: Baker Hughes' stock price has been trading below its 50-day SMA ($22.14) and its 200-day SMA ($21.97) as of June 30, 2023, indicating a bearish trend. According to the chart below, the stock price has also been making lower highs and lower lows since April 2023, indicating a downtrend. However, since June 2023, it has been on an upward trend, indicating a bullish trend.
- RSI: Baker Hughes' stock price has an RSI of 75.8 as of July 24, 2023, indicating good momentum. The RSI has been fluctuating between 30 and 70 since February 2023, indicating a sideways movement.
Source: TradingView
Based on the SMA and RSI, we can expect Baker Hughes' stock price to continue its bullish trend or sideways movement in the near term, unless there is a significant catalyst or change in market conditions.
Key Resistance and Support Levels of BKR Stock
Baker Hughes' stock price has some key resistance and support levels that can act as potential barriers or targets for its future movements. Resistance levels are prices that the stock has difficulty breaking above, while support levels are prices that the stock has difficulty breaking below. We will use TradingView charts to identify some of these levels.
- Resistance levels: Some of the key resistance levels for Baker Hughes' stock price are $32.50, $30.00, $33.50, and $35.00. These levels have acted as previous highs or lows that the stock has failed to surpass or has reversed from.
- Support levels: Some of the key support levels for Baker Hughes' stock price are $26.00, $27.50, $28.00, and $27.50. These levels have acted as previous lows or highs that the stock has bounced from or has held above.
Source: TradingView
Based on the resistance and support levels, we can expect Baker Hughes' stock price to face some challenges or opportunities if it reaches or breaks these levels in the future.
Analyst Recommendations and Price Targets
Baker Hughes' stock price forecast can also be based on consensus analyst recommendations and price targets from major research firms and financial institutions. According to Yahoo Finance, as of June 30, 2023, the consensus analyst recommendations and price targets for Baker Hughes were as follows:
- Recommendations: The average recommendation for Baker Hughes was Buy, based on 23 analysts covering the stock. The breakdown of the recommendations was 15 Buys, 7 Holds, and 1 Sell.
- Price targets: The average price target for Baker Hughes was $26.74, based on 21 analysts providing price targets. The highest price target was $35.00, and the lowest price target was $20.00.
Based on the analyst recommendations and price targets, we can expect Baker Hughes' stock price to have some upside potential in the next 12 months, as the average price target implies an increase of 24% from the closing stock price of $21.65 per share as of June 30, 2023.
Challenges and Opportunities
Source: Verlume
Baker Hughes faces various challenges and opportunities in its business environment, such as:
Competitive Risks
Baker Hughes operates in a highly competitive and fragmented market for oilfield services and energy technology solutions. The company competes with several major players such as Schlumberger, Halliburton, TechnipFMC, Siemens Energy, and GE, as well as numerous smaller and regional players. The company faces competitive risks such as:
- Price pressure: The company faces price pressure from its customers and competitors, especially in the oilfield services segment, where the demand and supply dynamics are influenced by oil and gas prices and activity levels.
- Market share loss: The company faces market share loss from its competitors, especially in the oilfield equipment and turbomachinery segments, where the competition is based on technology, innovation, quality, reliability, and customer relationships.
- Innovation lag: The company faces innovation lag from its competitors, especially in the digital solutions and new energy segments, where the competition is based on data analytics, artificial intelligence, machine learning, industrial Internet of things, etc.
Baker Hughes needs to constantly monitor and respond to the competitive risks in its market by investing in innovation, differentiation, customer satisfaction, operational excellence, and cost efficiency.
Despite all these risks, Baker Hughes has some competitive advantages that make the company stand out, here are some of Baker Hughes' competitive advantages:
- Global reach: Baker Hughes has a global reach, with operations in over 120 countries. This gives the company a strong presence in key oil and gas markets around the world.
- Technology leadership: Baker Hughes is a technology leader in the oil and gas industry. The company invests heavily in research and development, and it has a portfolio of innovative products and services that help customers improve their operations.
- Customer focus: Baker Hughes is customer-focused. The company works closely with customers to understand their needs and develop solutions that meet their specific requirements.
Other Risks
Baker Hughes also faces other risks that could affect its business performance and outlook, such as:
- Geopolitical and commodity price risks: The company's business is exposed to geopolitical and commodity price risks that could affect the demand and supply of oil and gas and other energy sources.
- Operational and execution risks: The company's business is exposed to operational and execution risks that could affect the quality and delivery of its products and services.
- Financial and liquidity risks: The company's business is exposed to financial and liquidity risks that could affect its ability to fund its operations, investments, dividends, and debt repayments.
Baker Hughes needs to constantly manage and mitigate the other risks in its business by implementing effective risk management policies by implementing effective risk management policies, strategies, and controls.
Growth Opportunities
Baker Hughes also has various growth opportunities that could enhance its business performance and outlook, such as:
- Exposure to oilfield services and energy technology solutions: The company has a diversified portfolio of oilfield services and energy technology solutions that could benefit from the recovery and growth of the oil and gas industry as well as the transition to cleaner and lower-carbon energy sources.
- Innovation and digitalization: The company has a strong focus on innovation and digitalization that could enable it to offer more efficient, sustainable, and innovative solutions for its customers' operations and challenges.
- Sustainability and ESG: The company has a strong commitment to sustainability and environmental, social, and governance (ESG) principles that could enhance its reputation, brand value, and stakeholder trust.
Baker Hughes needs to constantly pursue and capitalize on the growth opportunities in its market by investing in growth drivers, customer value, strategic initiatives, and stakeholder engagement.
Source: Enggwave
Future Outlook and Expansion
Baker Hughes has a positive future outlook and expansion plan that could support its long-term growth and value creation. The company's future outlook and expansion plan include:
- Revenue growth: The company expects its revenue to grow at a compound annual growth rate (CAGR) of 5% to 7% from 2022 to 2025, driven by higher activity and orders across all segments, especially in Oilfield Services and Turbomachinery & Process Solutions.
- Margin expansion: The company expects its adjusted EBITDA margin to expand by 300 to 500 basis points from 2022 to 2025, driven by higher revenue, improved mix, operational efficiency, cost reduction, and digital transformation.
- Free cash flow generation: The company expects its free cash flow to grow at a CAGR of 10% to 15% from 2022 to 2025, driven by higher operating cash flow, lower capital expenditures, working capital optimization, and dividend income from GE.
- Dividend growth: The company expects its dividend to grow at a CAGR of 10% to 15% from 2022 to 2025, driven by higher free cash flow generation, payout ratio expansion, and shareholder return policy from 1.6x as of June 30, 2023, to below 1x by 2025, driven by higher EBITDA, lower debt, and debt refinancing.
Baker Hughes needs to constantly execute and deliver on its future outlook and expansion plan by focusing on performance, growth, returns, and sustainability.
Why Traders Should Consider BKR Stock
A. Reasons Why Traders Should Consider BKR Stock
Baker Hughes offers traders several compelling reasons to consider its stock:
- Diversified Product Portfolio: The company's diversified product portfolio provides exposure to various segments of the oil and gas industry, reducing dependency on specific market conditions.
- Technological Advancements: Baker Hughes' focus on technological innovation enables it to adapt to industry changes and stay ahead of competitors.
- Global Presence: The company's global presence and extensive customer base offer a wide range of growth opportunities across different regions.
B. Trading Strategies for BKR Stock
Here is more detail on the different trading strategies that can be used for BKR stock:
Day trading
This is a short-term trading strategy that involves buying and selling stocks within the same day. BKR stock day traders typically use technical analysis to identify short-term trends in stock prices. They often make multiple trades per day, and they typically hold their positions for a few minutes to a few hours.
Swing trading
This is a longer-term trading strategy that involves buying and selling stocks over a period of days, weeks, or even months. BKR stock swing traders typically use fundamental analysis to identify stocks that are undervalued or overvalued. They often hold their positions for a few days to a few weeks.
CFD trading
CFD trading is a type of derivative contract that allows traders to speculate on the future price of an underlying asset without actually owning the asset. In the case of BKR stock, CFD traders would not own shares of Baker Hughes. Instead, they would enter into a contract with a CFD broker to buy or sell the stock at a certain price.
CFD trading is a leveraged product, which means that traders can control a large position with a relatively small investment. This can magnify profits, but it can also magnify losses. For example, if a trader buys 1 CFD contract on BKR stock at $100 per share, and the price of the stock rises to $105 per share, the trader would make a profit of $500. However, if the price of the stock falls to $95 per share, the trader would lose $500.
Source: BCE
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Conclusion
In conclusion, Baker Hughes (NASDAQ: BKR) is a prominent player in the oilfield services industry, with a diversified product portfolio and a focus on technological innovation. The company's financial stability and growth opportunities make it an attractive option for both long-term investors and traders. However, as with any investment decision, thorough research and risk assessment are essential.
By staying updated with the latest developments and market trends, traders and investors can make well-informed decisions to capitalize on the potential benefits offered by Baker Hughes' stock.
