Baker Hughes Company
Baker Hughes Company (NYSE: BKR) is engaged in providing oilfield products, services, and digital solutions to global oil and gas markets within the upstream, midstream, and downstream segments. The company currently operates in more than 120 countries. The company operates in four business segments i.e., Oilfield Services (OFS), Oilfield Equipment (OFE), Turbomachinery & Process Solutions (TPS), and Digital solutions. As of May 06th, 2021, the company’s market capitalization stood at USD 23.53 billion.
Collaboration with Bloom Energy to fasten the energy transition process: As of May 05th, 2021, the company announced a collaboration with Bloom Energy (NYSE: BE), the leader in energy distribution, to engage in the distribution of low carbon power and hydrogen solutions so that the energy transition process can speed up. This collaboration can be viewed as a model to work together, integrate technologies and capabilities to achieve the common goal of global decarbonization.
Acquired license from SRI International for Mixed Salt Process (MSP) Technology: As of March 29th, 2021, the company announced that it has entered into a global licensing agreement with SRI International to use its Mixed salt process technology for capturing carbon-di-oxide. The increased use of carbon-capturing technology would reduce C02 emissions, required to meet the global 2050 climate targets. This license will complement the Baker Hughes CCUS technology portfolio for new frontiers.
Q1FY21 Results: The company reported an 11.85% decline in net revenue to USD 4.78 billion in Q1FY21 (ending March 31, 2021) as compared to USD 5.425 billion in Q1FY20 (ending March 31, 2020). This is primarily due to a 17.91% decline in the number of orders to USD 4.54 billion in Q1FY21 as compared to USD 5.53 billion in Q1FY20. The company recorded a massive increase in free cash flow (non- GAAP) by 227.63% to USD 498.00 million in Q1FY21 as compared to USD 152 million in Q1FY20.
Key Risks: BKR continues to face disruption in its business activity from the Covid-19 pandemic. The global demand for Oil is closely related to the containment of the pandemic. Any fresh lockdown could impact the Oil and Gas industry and hence impact the profitability of the firm.
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation
(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
BKR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Stock Recommendation: BKR has increased by 5.60% in the past three months and is currently leaning towards the average of the 52-week range of USD 12.13 to USD 25.64. We have valued the stock using the EV/EBITDA based relative valuation methodology and arrived at a target price of USD 25.69. The stock is currently trading above the 200 DMA level. Considering the slight upside in the stock price in the past three months, current trading levels, investment in future cleaner energy sources, and decent fundamentals we recommend a “Buy" rating on the stock at the closing price of USD 22.60, up by 4.78% as of 05th May 2021.