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Baker Hughes (BKR) Up 3.8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Baker Hughes (BKR). Shares have added about 3.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Baker Hughes due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Baker Hughes Reports Q4 Loss, Tops Revenue Estimates

Baker Hughesreported fourth-quarter 2020 adjusted loss of 7 cents per share against the Zacks Consensus Estimate of a profit of 16 cents. The year-ago adjusted profit was 27 cents per share.   

Revenues totaled $5,495 million, beating the Zacks Consensus Estimate of $4,464 million. However, the figure was lower than the year-ago quarter’s $6,347 million.

The weak earnings were due to lower profits from the company’s Oilfield Services and Digital Solutions units. Higher equipment mix in Turbomachinery & Process Solutions also affected the bottom line. This was partially offset by higher cost productivity in the Oilfield Equipment unit, and increased volumes in Turbomachinery & Process Solutions.

Segmental Performance

Revenues from the Oilfield Services (OFS) unit amounted to $2,282 million, down 31% from the year-ago figure of $3,292 million. The downside was due to lower revenues from Asia Pacific, Middle East and Europe. Operating income from the segment was $142 million, down from $235 million reported in fourth-quarter 2019.

Revenues from the Oilfield Equipment (OFE) unit totaled $712 million, down 7% from the prior-year quarter’s $765 million. The segment was affected by lower volumes in the company’s Services businesses and decreased sale in the Surface Pressure Control flow business. The segment reported a profit of $23 million compared with the year-ago figure of $16 million. This year-over-year increase was caused by higher cost productivity.

Revenues from the Turbomachinery & Process Solutions (TPS) unit increased to $1,946 million from $1,632 million a year ago owing to higher equipment and project revenues, partially offset by a decline in services volume. Moreover, segmental income increased to $332 million from $305 million in the fourth quarter of 2019 owing to higher productivity and volumes. The positives were partially offset by higher equipment mix.

Revenues from the Digital Solutions (DS) segment amounted to $556 million, down 16% from $659 million in the year-ago quarter. Operating profit at the segment totaled $76 million, down 30% from the year-ago quarter’s $109 million. The segment was affected by lower volumes throughout all product lines.

Costs and Expenses

The company recorded total costs and expenses of $5,313 million for the fourth quarter, down from the year-ago figure of $6,016 million.

Orders

Total orders from all business segments for fourth-quarter 2020 were $5,188 million, down 25% year over year due to lower order intakes in all the four segments. The company witnessed 30% decrease in equipment orders and 21% decline in service orders for the fourth quarter.

Free Cash Flow

It generated positive free cash flow of $250 million in the reported quarter compared with $1,053 million in the year-ago period.

Capex & Balance Sheet

Baker Hughes’ net capital expenditure for the fourth quarter totaled $127 million, lower than $304 million in the year-ago period.

As of Dec 31, 2020, the company had cash and cash equivalents of $4,132 million, up from $4,061 million in the third quarter. At fourth quarter-end, it had a long-term debt of $6,744 million, down sequentially from $6,754 million. It had a debt to capitalization of 27%.

Outlook

The company, being able to overcome oil market volatility in 2020, expects market activity to stabilize going forward. Baker Hughes is cautiously optimistic as it expects the world economy and demand for oil to recover in 2021. In the first half of the year, the company expects tepid investment in hydrocarbons, which will gain momentum with time.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 17.26% due to these changes.

VGM Scores

Currently, Baker Hughes has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Baker Hughes has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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