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Summary

  • Oilfield Services companies are gaining momentum.
  • Baker Hughes' innovative technologies and services are generating massive growth for the company.
  • It will keep its momentum on the back of positive economic and business indicators.
  • Baker Hughes offers an attractive entry point.

Baker Hughes (NYSE:BHI) is one of the best companies operating in the oilfield services industry. It has been generating very strong growth in its top line over the past few years. According to Morningstar, Baker Hughes has generated 15% growth in its top line. Its industry leading innovative products, technologies, and services are generating massive growth for the company and allowing it to secure multiple new contracts. In the past quarter alone, the company has launched around 47 new products and services to address the industry's challenges. Its recently launched FASTrak and SHADOW plug technologies are reducing the time and cost of customers to evaluate their reservoirs.

The company has seen very strong demand for its technologies and services in Europe, Russia and the Russian Caspian segment, Africa, and the North Sea, following weather delays in the past two quarters. Demand for its wireline and drilling services are increasing in Angola, the United Kingdom, and Mozambique. The company also posted record results in the Asia-Pacific and Middle Eastern markets with its drilling services. It also benefited from the delivery of temperature completions and high-pressure technologies in Southeast Asia and artificial lifting completion system in China.

Furthermore, Baker Hughes has been gaining its market share in Mexico's marine region. The company has been able to secure multiple contracts for intelligent production systems, drilling services, and cementing. Additionally, more wells, rigs, and horizontal drilling activities are growing in the US onshore market; therefore Baker Hughes, with the innovative products and services, has been generating record revenues with its drilling services and drill bit product lines. Demand for Kymera drill bits, AutoTrak Curve, and Talon drill bits remains at record levels for the company at the end of the most recent quarter.

Baker Hughes is capitalizing on growing demand for new technologies from customers as they seek to increase shale oil production. Its recent launch of ProductionWave technology and production chemicals product lines are fulfilling the demand for advanced technologies. Its artificial lift and upstream chemicals have posted record sales in the past quarter. Overall, at the end of the recent quarter, Baker Hughes has posted a record 8% growth in revenues and a 15% sequential increase in operating profits. With the launch of new product and services, it has been able to enhance margins, which it was previously unable to.

Risks Associated with Baker Hughes

Baker Hughes is operating in the oilfield services industry. The entire industry is on momentum with healing of economy and increased investments from Integrated oil & gas and Exploration & Production companies. With the recent shift of these companies towards liquid plays and oil production, they have been investing heavily on increasing their productions and reserves. This, in turn, enhanced demand for oil field services companies over the past few years. Long-term fundamentals are looking strong, as most of the companies are increasing their growth activities and moving more towards horizontal drilling in the international regions. Baker Hughes, with its innovative products, is well set to capitalize on the growing demand all over the globe.

Further, Baker Hughes' cash generating potential is also strong to support potential investments and dividends. Its operating cash flows are covering capital investments and dividend payments. In the latest quarter, the company has generated $696M in operating cash flows, when capital expenditure was at $424M and dividend payments at $65M. In addition, Baker Hughes has repurchased around 2.9 million shares in the past quarter alone, which will positively impact its dividend and share price. Going forward, I am expecting the company to continue its buyback program, as it is likely to post higher profits in the second half of 2014.

Baker Hughes is standing at the lower end of the ladder when it comes to risk assessment. Economic and business outlook for Baker Hughes is strong, and it has the ability to capitalize on the growing demand. Secondly, the company is in a sound financial condition to support its business activities. Therefore, I am not seeing any hurdle for the company going forward.

In Conclusion

Baker Hughes' ability to introduce a line of innovative technologies and services allows it to expand its global market share. The company is expecting to generate 15% growth in operating income in the third quarter of this year, and is likely to post higher profits and cash flows for the full year. The economic and business outlook is also supporting Baker Hughes to keep its momentum. Additionally, Baker Hughes is trading in line with the industry multiples. With recent market correction, Baker Hughes is presenting an attractive entry point, as the company has strong upside potential on the back of its product portfolio and a suitable business environment.

Source: Baker Hughes Will Keep Its Winning Momentum