Baker Hughes Company BKR, a leading energy technology firm, has demonstrated robust performance with a 20% rise in its share price in 2024. It has outpaced the broader oil energy sector, which gained 1.8% during the same period. Furthermore, BKR has surpassed its peers, including SLB SLB and Halliburton HAL, in the Oil and Gas Equipment and Services industry.
Image Source: Zacks Investment Research
Baker Hughes operates at the forefront of the energy technology landscape, providing advanced solutions for oilfield services, digital technology and energy transition. The company’s diversified offerings, spanning traditional oil and gas operations to renewable energy solutions, position it uniquely within the evolving energy landscape.
Let’s examine the factors driving BKR’s strong performance and assess whether this momentum will persist.
Factors Favoring BKR Stock
Strong Financial Performance and Shareholder Returns
In the third quarter of 2024, BKR posted $6.9 billion in revenues, marking a 4% year-over-year increase. Adjusted EBITDA grew to $1.2 billion, reflecting a 23% surge from the prior-year quarter’s level. The company’s free cash flow of $754 million enabled a robust shareholder return framework, including dividends and share buybacks totaling $361 million during the quarter. These figures highlight Baker Hughes’ financial stability and its ability to generate value for shareholders amid a volatile energy market.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Record Operational Performance
Baker Hughes achieved operational milestones, including securing large-scale contracts in both its Oilfield Services and Energy Technology segments. Key wins include multi-year agreements with Middle Eastern national oil companies and significant orders for integrated compressor line technology from global clients. The growing installed base of Gas Technology Equipment and associated Gas Technology Services (“GTS”) has driven structural growth, with GTS revenues projected to grow 20% through 2030.
Strategic Investments and Cost Efficiency
The company’s focus on expanding its energy transition portfolio has been a critical growth driver. Investments in hydrogen, carbon capture, and digital solutions have diversified revenue streams while aligning with global sustainability goals. Additionally, Baker Hughes’ cost-management initiatives, such as supply-chain efficiencies and portfolio optimization, have contributed to its enhanced profitability and positioned the company to navigate industry headwinds effectively.
Long-Term Vision and Sustainability
Baker Hughes’ strategic pivot toward clean energy solutions positions it as a key player in the global energy transition. The company’s investment of $658 million in R&D in 2023 has driven innovation in emissions abatement, hydrogen infrastructure and carbon capture technologies. This commitment to sustainability is further reflected in its reduction of Scope 1 and 2 GHG emissions by 28.3% from the 2019 baseline.
While Baker Hughes has strong long-term potential, prospective investors should carefully consider a few challenges and risks.
Red Flags for Baker Hughes
Dependence on Market Cyclicality
As an oilfield services company, the company remains vulnerable to fluctuations in global oil prices and exploration budgets. While its energy transition initiatives provide diversification, a major portion of its revenues — approximately 60% in 2023 — is still tied to traditional oil and gas operations. A downturn in oil prices or reduced capital spending by upstream operators could affect BKR’s financial performance.
Valuation Concerns
BKR’s current price-to-earnings (P/E) ratio of 15.96 exceeds the industry average of 12.25. This premium valuation suggests that much of the optimism around its energy transition efforts and operational success might already be priced in. Investors should consider whether the stock’s growth potential justifies its higher valuation or if a pullback could offer a better entry point.
Image Source: Zacks Investment Research
Execution Risks in Energy Transition Projects
While Baker Hughes’ investments in hydrogen and carbon capture projects are promising, these initiatives face execution risks, including technological challenges, regulatory hurdles and competitive pressures. Delays or cost overruns in such projects could affect the company’s profitability and erode investor confidence.
Capital-Intensive Business Model
Baker Hughes’ operations require significant capital investments to maintain competitiveness, particularly in high-tech segments like digital solutions and energy transition projects. The company’s capital allocation includes $159 million in R&D investment in the third quarter of 2024 alone. While these investments drive growth, they also heighten financial risks, particularly during periods of economic or industry-specific downturns.
Final Verdict for BKR Stock
Baker Hughes boasts strong financial performance, operational excellence and a forward-looking strategy that aligns with global energy transition trends. Its focus on high-value contracts, cost efficiency, and sustainability positions it as a resilient player in the energy sector. However, the company’s exposure to market cyclicality, higher valuation and capital-intensive operations may pose risks for investors.
For those seeking exposure to the energy transition while capitalizing on the continued relevance of traditional oil and gas, Baker Hughes presents a compelling case. However, given its premium valuation and the potential for near-term volatility, investors may consider waiting for a pullback or clearer financial signals before adding this Zacks Rank #3 (Hold) stock to their portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.1% per year. So be sure to give these hand picked 7 your immediate attention.
See them now >>Schlumberger Limited (SLB) : Free Stock Analysis Report
Halliburton Company (HAL) : Free Stock Analysis Report
Baker Hughes Company (BKR) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
