Analyzing the Fundamental Performance of BKR

Metal Fabrication company Baker Hughes is standing out today, surging to $34.51 and marking a 4.8% change. In comparison the S&P 500 moved only -0.0%. BKR is -15.46% below its average analyst target price of $40.82, which implies there is more upside for the stock.

As such, the average analyst rates it at buy. Over the last year, Baker Hughes has underperfomed the S&P 500 by 18.4%, moving 7.9%.

Baker Hughes Company provides a portfolio of technologies and services to energy and industrial value chain worldwide. The company belongs to the industrials sector, which generally includes cyclical companies -- with the exception of conglomerates whose business may span several industries. Cyclical companies experience higher sales during periods of economic expanision, and worsening outlooks during recessions.

Baker Hughes's trailing 12 month P/E ratio is 19.3, based on its trailing EPS of $1.79. The company has a forward P/E ratio of 13.6 according to its forward EPS of $2.53 -- which is an estimate of what its earnings will look like in the next quarter.

The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the second quarter of 2024, the industrials sector has an average P/E ratio of 25.4, and the average for the S&P 500 is 27.65.

The main limitation with P/E ratios is that they don't take into account the growth of earnings. This means that a company with a higher than average P/E ratio may still be undervalued if it has high projected earnings growth. Conversely, a company with a low P/E ratio may not present a good value proposition if its projected earnings are stagnant.

When we divide Baker Hughes's P/E ratio by its projected 5 year earnings growth rate, we obtain its Price to Earnings Growth (PEG) ratio of 0.49. Since a PEG ratio of 1 or less may indicate that the company's valuation is proportionate to its growth potential, we see here that investors are undervaluing BKR's growth potential .

Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Baker Hughes's last four annual reports, we are able to obtain the following rundown of its free cash flow:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023 3,062,000 1,224,000 1,838,000 104.45
2022 1,888,000 989,000 899,000 -40.78
2021 2,374,000 856,000 1,518,000 360.0
2020 1,304,000 974,000 330,000 -62.75
2019 2,126,000 1,240,000 886,000 15.51
2018 1,762,000 995,000 767,000
  • Average free cash flow: $1.04 Billion
  • Average free cash flown growth rate: 17.3 %
  • Coefficient of variability (the lower the better): 0.0 %

With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in BKR have received an annualized dividend yield of 2.4% on their capital.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.

Baker Hughes has a P/B ratio of 2.24. This indicates that the market value of the company exceeds its book value by a factor of more than 2, but is still below the average P/B ratio of the Industrials sector, which stood at 3.23 as of the second quarter of 2024.

Baker Hughes is by most measures undervalued because it has a Very low P/E ratio, a lower P/B ratio than its sector average, and generally positive cash flows with an upwards trend. The stock has mixed growth prospects because it has a an average PEG ratio and decent operating margins with a positive growth rate. We hope you enjoyed this overview of BKR's fundamentals.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.