On Monday, JPMorgan adjusted its outlook on Baker Hughes (NASDAQ:BKR) shares, increasing the price target to $43 from $42, while maintaining an Overweight rating on the stock.
The firm acknowledged Baker Hughes’ strategic transformation initiated in the third quarter of 2022, which involved a more streamlined organizational structure and the introduction of new leadership roles, including CFO Buese and IET EVP Ramaswamy. These changes are part of CEO Simonelli’s efforts to enhance the company’s leadership, resulting in more consistent operational and financial performance.
Baker Hughes has shown resilience despite challenges in the U.S. LNG export approval process. The company has successfully secured approximately $6.4 billion in IET orders in the first half of 2024, keeping it on track to meet its full-year inbound IET order target of $11.5 to $13.5 billion. The firm’s performance is particularly noted in non-LNG Gas Tech orders, which make up about 85% of its bookings, showcasing the breadth of its IET segment.
The company has also demonstrated a unique capability to integrate technologies and services from its OFSE and IET segments to create New Energy solutions. This synergy was evident in the strong New Energy orders totaling $445 million in the second quarter of 2024, with year-to-date orders reaching $684 million, approaching the annual forecast of $800 million to $1 billion.
Baker Hughes reported a rise in 2Q24 EBITDA margins to 15.8%, a 150 basis points increase year-over-year, exceeding JPMorgan’s estimate by 40 basis points. The margin improvement was attributed to various factors, including strength in SSPS, cost optimization in OFSE, higher margin backlog conversion in IET, and supply chain efficiency gains in IPS.
Despite revising its 2024 North American spending outlook to a mid-single-digit decline, Baker Hughes expects international spending to continue growing at a high single-digit rate, although at a slowing pace into 2025 and beyond. The company’s focus on production leveraged solutions like Leucipa offers promising growth prospects. Furthermore, Baker Hughes remains confident in reaching its 20% EBITDA margin targets for OFSE in 2025 and IET in 2026, which supports JPMorgan’s positive stance on the stock.
In other recent news, Baker Hughes, an energy technology company, has seen significant developments. The company reported exceptional performance in the second quarter, leading Citi to increase its price target to $44.00 while maintaining a Buy rating. Despite the challenges in the Oilfield Services sector, Baker Hughes saw a 100 basis point margin improvement, which was significant as the equipment segment, including Gas Turbine Equipment and Climate, constituted 53% of total revenues for the quarter.
Baker Hughes has also increased its full-year EBITDA guidance by 5% and raised its quarterly cash dividend to $0.21 per share, a 5% rise from the same quarter of the previous year. However, BofA Securities adjusted its outlook on Baker Hughes by lowering the price target from $40.00 to $38.00, reflecting potential disruptions that the energy transition may cause in the industry.
UBS has reaffirmed its Neutral stance on Baker Hughes, maintaining a price target of $37.00. The company is exploring the implementation of microgrid solutions in the Permian Basin, a move that could potentially lower emissions and enhance power reliability for oil and gas operators. These recent developments indicate Baker Hughes’ proactive approach towards addressing the energy needs and environmental concerns in the oil-rich Permian Basin.
InvestingPro Insights
Adding to JPMorgan’s optimistic outlook, real-time data from InvestingPro shows Baker Hughes with a robust market capitalization of $37.4 billion and a forward-looking P/E ratio of 18.25, suggesting that the stock is trading at a discount relative to its near-term earnings growth. The company’s revenue growth over the last twelve months as of Q2 2024 stands at a strong 16%, underpinning its operational success. Additionally, Baker Hughes boasts a notable dividend yield of 2.23%, with a history of maintaining dividend payments for 38 consecutive years, which is a testament to its financial stability and commitment to shareholder returns.
InvestingPro Tips highlight that analysts have recently revised their earnings upwards for Baker Hughes, indicating potential optimism in its financial outlook. Furthermore, the stock is trading near its 52-week high, reflecting a large price uptick over the last six months, which aligns with the company’s reported increase in EBITDA margins and successful order bookings. For investors seeking more in-depth analysis, InvestingPro offers additional tips that can provide further guidance on Baker Hughes’ stock performance. Use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and discover the wealth of insights available.
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