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Baker Hughes Is Now A Buy

May 04, 2020 5:53 AM ETBaker Hughes Company (BKR) StockHAL, SLB3 Comments
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Shock Exchange


  • BKR's Q1 revenue and EBITDA fell by double digits Q/Q. Its EBITDA margin fell hard.
  • Cost containment efforts should help improve margins. Its $3 billion in cash gives it ample liquidity to survive a downturn in E&P.
  • When the economy reopens, oil markets and BKR's business prospects should improve.
  • At just over 6x EBITDA, BKR is a buy.
  • Looking for a helping hand in the market? Members of Shocking The Street get exclusive ideas and guidance to navigate any climate. Get started today »

Baker Hughes CEO Lorenzo Simonelli. Source: BarronBaker Hughes CEO Lorenzo Simonelli. Source: Barron's

Baker Hughes (NASDAQ:BKR) reported Q1 revenue of $5.43 billion, Non-GAAP EPS of $0.11 and GAAP EPS of -$15.64. BKR is down over 40% Y/Y as the free fall in oil prices has taken a toll on oil-related names. In Q1, the company's revenue was off 15% sequentially, but things could be looking up.

Headwinds In North America E&P

E&P in the North America land drilling market has been facing headwinds for a while. Pricing power for oil services companies has also waned. This has come in spite of OPEC supply cuts over the years. Saudi Arabia and Russia recently agreed to additional production cut. After the pandemic ends, demand for oil should rise, driving prices and E&P higher. This should benefit Baker Hughes. Brent oil is currently sub-$30 on fears over a lack of storage capacity and weak demand.

For now, Baker Hughes will likely face headwinds in North America land drilling. Baker Hughes, Schlumberger (SLB) and Halliburton (HAL) dominate the sector, which makes their operations particularly vulnerable.

Baker Hughes Q1 2020 revenue. Source: Shock Exchange

The company's Q1 total revenue of $5.4 billion was off 15% Q/Q and down 3% Y/Y. Oilfield Services and Digital Solutions represent the company's short cycle businesses and are a proxy for exposure to North America land drilling. They generated a combined $3.6 billion in revenue, down 8% Q/Q. They represented 67% of total revenue, up from 62% in Q4. Oilfield Services was hurt primarily from a decline in international pressure pumping, artificial lift and completions. Digital Solutions revenue declined across most businesses as a result of the coronavirus.

Combined revenue from Turbomachinery and Oilfield Equipment was $1.8 billion, down 25% Q/Q. Revenue from Turbomachinery declined over 30% due to lower equipment and services revenue in addition to the disposition of certain business lines. Oilfield Equipment revenue fell 7% on lower volume

This article was written by

Shock Exchange profile picture
The Shock Exchange has a B.A. in economics and MBA from a top 10 business school. He has over 10 years of M&A / corporate finance experience. Currently head the New York Shock Exchange, financial literacy program based in Brooklyn, NY.His book, "Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead", predicted pain ahead for the U.S. economy and financial markets.In 2014 the law firm of Kirby, McInerney, LLP brought a class action lawsuit against Molycorp, Inc. for "materially misleading statements" in its financial statements. Kirby, McInerney used investigative journalism from the Shock Exchange to buttress its case. That's the discipline the Shock Exchange brings to every situation he covers for SA.

Analyst’s Disclosure: I am/we are long HAL, SLB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (3)

Ehud8 profile picture
I don't understand how this could be a buy now if the number of rigs has fallen to 1940 level? Less rigs = less oil field services.
I believe oil companies i.e. EOG offer better potential at the present and consider BKR a latter interval.
Sighcopath profile picture
Used to be known as a GE company. What liability if any does the current company have to GE problems? Haven't followed GE for over 18 months. IMHO any story about any company that used ot be part of or acquired any asset from GE needs to be viewed through the GE liability glasses!
rodolfoavalos1 profile picture
Could get worse before it gets better.. a lot worse.
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