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Baker Hughes (BKR) Down 10% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Baker Hughes (BKR). Shares have lost about 10% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Baker Hughes due for a breakout? 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 Q4 Earnings & Revenues Miss Estimates

Baker Hughes Company reported fourth-quarter 2019 adjusted earnings of 27 cents per share, which missed the Zacks Consensus Estimate of 31 cents primarily due to lower contributions from flexible pipe and surface pressure control businesses.

However, the bottom line improved marginally from the year-ago quarter’s adjusted profit of 26 cents, owing to strong growth in the oilfield services business in the Middle East, Latin America and the Asia Pacific.   

Revenues totaled $6,347 million, missing the Zacks Consensus Estimate of $6,491 million. However, the figure was higher than the year-ago quarter’s $6,264 million.

Segmental Performance

Revenues from the Oilfield Services unit amounted to $3,292 million, up 7% from the year-ago figure of $3,062 million. Operating income from the segment was $235 million, up from $224 million reported in fourth-quarter 2018. The upside was driven by strong growth in the Middle East, Latin America and the Asia Pacific.

Revenues from the Oilfield Equipment unit totaled $765 million, up 5% from the prior-year quarter’s $729 million. Notably, the segment reported a profit of $16 million, suggesting a significant improvement from the year-ago quarter’s $12 million. This can be attributed to increased contributions from Subsea Production Systems and Services businesses, offset partially by a decline in contributions from flexible pipe and surface pressure control businesses.

Revenues from the Turbomachinery & Process Solutions unit declined to $1,632 million from $1,782 million a year ago, owing to a decline in equipment and installation sales. However, segmental income increased to $305 million from $257 million in the fourth quarter of 2018, owing to higher cost productivity.

Revenues from the Digital Solutions segment amounted to $659 million, down 5% from $691 million in the year-ago quarter. Operating profit at the segment totaled $109 million, down 5% from the year-ago quarter’s $115 million. The segment was affected by lower contributions from Controls, and Pipeline & Process Solutions businesses.

Orders

Total orders from all business segments in fourth-quarter 2019 were $6,944 million, up 1% year over year, owing to growth in two of the four segments.

Free Cash Flow

The company generated free cash flow of $1,053 million in the reported quarter, improving from $876 million in the year-ago period.

Capex & Balance Sheet

Baker Hughes’ capital expenditure in the fourth quarter totaled $304 million.

As of Dec 31, 2019, the company had cash and cash equivalents of approximately $3,249 million, and a long-term debt of $6,301 million, representing a debt-to-capitalization ratio of 16.1%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -30% due to these changes.

VGM Scores

At this time, Baker Hughes has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Baker Hughes has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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