On Wednesday, CFRA upgraded shares of Baker Hughes (NASDAQ:BKR) from Sell to Hold, increasing the price target to $39 from the previous $30. This adjustment comes after the company's third-quarter earnings per share (EPS) of $0.67 surpassed the consensus estimate by $0.06, outperforming last year's $0.42 figure for the same quarter.
The new 12-month target price is based on an 8.5x multiple of the projected 2025 EBITDA, aligning with Baker Hughes' historical forward average. CFRA also adjusted its EPS estimates for the company, raising the 2024 projection by $0.11 to $2.32 and the 2025 forecast by $0.18 to $2.61.
Despite concerns about the macroeconomic environment and its potential impact on crude oil demand, which Baker Hughes expects to remain flat from 2023 to 2040, CFRA acknowledges it may have underestimated the future demand for the company's Industrial and Energy Technology (IET) segment.
The IET segment's margins stood strong at 17.9% in the third quarter, marking an increase of 290 basis points from the previous year. Baker Hughes has shown progress in its Gas Technology portfolio, which accounted for 65% of IET orders in the third quarter. The demand for liquefied natural gas (LNG) and AI/data center applications is expected to remain robust.
While exploration and production (E&P) capital expenditures in North America continue to be weak, Baker Hughes derives less than 25% of its oilfield services revenues from the North American market. This diversification may help shield the company from regional market fluctuations.
In other recent news, Baker Hughes, an energy technology firm, has been making considerable strides. The company's recent earnings and revenue results indicate a strong performance, with the third quarter earnings exceeding Wall Street's expectations. Baker Hughes reported an adjusted profit of 67 cents per share, outpacing the average analyst prediction of 61 cents. However, the total revenue of $6.91 billion fell slightly short of the anticipated $7.22 billion.
Among other developments, Baker Hughes has projected continued pretax margin growth into the next year, underpinned by a significant increase in orders for its non-LNG gas technology equipment and improved margins in oilfield services and LNG equipment. The company's CEO, Lorenzo Simonelli, expressed confidence in achieving the company's full-year EBITDA guidance midpoint.
Furthermore, the firm anticipates growth across most segments, with several LNG projects in the United States and internationally progressing towards their final investment decisions. As a result, Baker Hughes expects its fourth-quarter total EBITDA to be approximately $1.26 billion, positioning the company on a steady path to reach its margin target of 20% by 2026.
InvestingPro Insights
Baker Hughes' recent performance and CFRA's upgrade are further supported by real-time data from InvestingPro. The company's P/E ratio of 19.66 and adjusted P/E ratio of 17.88 for the last twelve months as of Q2 2024 suggest a relatively attractive valuation, especially considering its growth prospects. This is reinforced by an InvestingPro Tip indicating that Baker Hughes is trading at a low P/E ratio relative to its near-term earnings growth.
The company's financial health appears solid, with revenue growth of 16% over the last twelve months and a gross profit margin of 20.57%. An InvestingPro Tip highlights that Baker Hughes operates with a moderate level of debt, which aligns well with its steady performance and growth trajectory.
For investors seeking stability, it's worth noting that Baker Hughes has maintained dividend payments for 38 consecutive years, according to another InvestingPro Tip. This consistency in shareholder returns, coupled with a current dividend yield of 2.33%, may appeal to income-focused investors.
InvestingPro offers 8 additional tips for Baker Hughes, providing a more comprehensive analysis for those interested in deeper insights into the company's prospects and market position.
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