This company has affected the entire energy sector from the ground up
Pioneering many of the technologies that have become standard in the oil and gas industry, the company has specialized in a wide range of technologies and services for the entire energy industry. With dynamic earnings and cash flow growth that exceeds the industry average, this company is worthy of attention.
This article will focus on analyzing the company's financial ratios and performance to better understand its investment potential and strategic prospects within the global energy industry.
Company introduction
Baker Hughes $BKR-0.5% is a global industrial and energy company headquartered in Houston, Texas that focuses on providing integrated services and technologies to the oil and gas industry. It was formed in 1987 through the merger of Baker International and Hughes Tool Company, two pioneering oil and gas companies with roots dating back to the early 20th century.
Baker Hughes specializes in a wide range of products and services that span the entire energy industry value chain, from raw material extraction to processing to distribution. Its main areas of activity include:
- Drilling and completionA: The Company provides technologies and services for efficient and safe drilling and completion of wells, which includes drilling rigs, directional drilling tools, well control technologies, and cementing and stimulation services.
- Reservoir managementA: Baker Hughes offers solutions for monitoring and optimizing the recovery of raw materials from reservoirs, including systems for measuring and analyzing data to help increase efficiency and yield.
- Turbomachinery and process solutions: The company manufactures and supplies a wide range of turbomachinery equipment, such as gas turbines, compressors and pumps, which are used in a variety of industries, including power, chemical and refineries.
- Digital technology and artificial intelligence: Baker Hughes uses advanced digital technologies and artificial intelligence to optimise operational processes, improve safety and reduce costs. This includes platforms for predictive maintenance, automation and data analytics.
Baker Hughes is exciting because it is constantly innovating and adapting to the changing needs of the energy sector. In recent years, the company has focused on sustainability and supporting the transition to cleaner energy. It is investing in technologies that help reduce greenhouse gas emissions and improve energy efficiency. For example, it is involved in the development of technologies for carbon capture and storage (CCS) and the development of the hydrogen economy.
The company's history is rich with significant milestones and innovations. Baker Hughes has pioneered many technologies that have become standard in the oil and gas industry. For example, in 1907 Howard Hughes Sr, one of the founders of the Hughes Tool Company, invented the twin-cone drill bit that revolutionized oil well drilling.
Today, Baker Hughes is a major player in the global energy services and technology market, with offices and operations in more than 120 countries. With its innovative solutions and strong focus on sustainability and digital transformation, the company is committed to playing a key role in the future of energy.
3 reasons why the company is interesting
Profit growth - Earnings growth is arguably the most important factor, as stocks showing exceptional earnings growth tend to attract the attention of most investors. For growth investors, double-digit earnings growth is definitely preferred and often indicates strong prospects (and share price growth) for the company under consideration.
Baker Hughes' historical earnings per share (EPS) growth rate is 34.2%, but investors should focus on expected growth. The company's EPS is expected to grow 30.8% this year, well above the industry average of 7.8% (based on analyst estimates and company data).
Cash flow growth - Cash is the lifeblood of any business, but above-average cash flow growth is more beneficial and important for growth-oriented companies than for established companies. This is because high cash accumulation allows these companies to undertake new projects without having to raise expensive external financing.
Currently, the year-on-year cash flow growth for Baker Hughes is 37.9%, which is higher than many of its competitors. In fact, this growth is significantly higher than the industry average of 18.8%.
Favourable revisions to earnings estimates - The stock's superiority within the above metrics can be further confirmed by looking at the trend of earnings estimate revisions. A positive trend is obviously desirable here. Empirical research shows that there is a strong correlation between earnings estimate revision trends and stock price movements in the short term.
For Baker Hughes, there has been an increase in earnings estimates for this year. The Zacks Consensus Estimate for this year has risen 0.1% over the past month.
Q1 Quarterly Results
Total orders came in at $6.5 billion, including $2.9 billion from orders in the Industrial & Energy Technology (IET) segment. Revenue increased 12% year over year to $6.4 billion. Net income attributable to the company was $455 million, resulting in GAAP diluted earnings per share (EPS) of $0.45 and adjusted diluted EPS of $0.43. Adjusted EBITDA was $943 million, up 21% year-over-year. Cash flow from operating activities was $784 million and free cash flow was $502 million. Return to shareholders was $368 million, including $158 million of share repurchases.
Chairman and CEO Lorenzo Simonelli said 2024 has started well for Baker Hughes. Strong first-quarter results set the company on track to achieve its full-year goals and continue the growth momentum started last year. Order growth was particularly strong in the IET segment, which recorded orders worth $2.9 billion during the quarter, including significant orders from Aramco for the Master Gas System 3 project and from Black & Veatch for the Cedar LNG project.
Operating results for the first quarter were strong, with year-over-year adjusted EPS growth of 50%. The company also beat its midpoint target for EBITDA margin due to excellent operating performance in the IET segment. The quarter also saw $239 million of new energy orders closed and more than $500 million of free cash flow generated.
Baker Hughes also continued to improve shareholder returns. During the quarter, it increased its quarterly dividend by one cent to 21 cents, an 11% increase year-over-year, and conducted $158 million in share repurchases. The company is firmly on track to achieve its goal of returning 60%-80% of free cash flow to shareholders.
Significant orders in Q1
The OFSE segment won two significant, multi-year onshore and offshore services contracts from Petrobras in the first quarter, showing continued momentum in the country. The first contract involves the provision of integrated drilling services for three rigs in the Buzios field offshore Brazil. The second contract aims to optimize the efficiency, reliability and sustainability of onshore operations in the Bahia-Terra cluster, where artificial lift services including electric submersible pumps, variable speed drives and sand separation will be deployed.
The IET segment continued to demonstrate its leadership in gas technology. Major orders include the supply of gas process equipment for the third phase of the Master Gas System project in Saudi Arabia, where Baker Hughes will supply 17 centrifugal compressors driven by advanced aeroderivative gas turbines. This new gas distribution network project is designed to accelerate the transition from oil to gas for domestic power generation and help reduce carbon dioxide emissions in the Kingdom.
The Company's overall performance in the first quarter of 2024 demonstrates strong growth and the Company's ability to continue to deliver on its strategic objectives and deliver value to its shareholders.
A look at recent years' performance
Valuation
The financial analysis of Baker Hughes indicates a stable economic position and a solid market position. The P/E (price to earnings ratio) is 18.91. This ratio indicates that investors are willing to pay a reasonable price for the company's earnings, reflecting confidence in its future performance.
The P/B ratio (price to book value) is 2.17, which means that the stock is valued at more than double the company's book value. This indicates a strong perception of the company's value beyond its net asset value. The P/S (price to earnings) ratio is 1.29, indicating a realistic valuation of earnings relative to the share price.
The D/E (debt to equity) ratio of 0.39 and D/C (debt to total capital) of 0.28 indicate that the company maintains a conservative level of debt. This indicates strong financial stability and the company's ability to manage its liabilities without excessive risk.
The return on assets (ROA) is 4.91%, indicating that the company is effectively using its assets to generate profits. Return on Equity (ROE) is 11.84%, indicating the company's ability to generate profits from shareholders' investments.
Return on Invested Capital (ROIC) is 9.48%, which is another indicator of efficiency in using capital to generate returns. The company's margins are also positive: gross margin is 20.52%, operating margin is 10.68% and net margin is 6.96%. These margins are indicative of the company's ability to maintain a significant proportion of revenues net of costs and other expenses.
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