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blue-chip

Should You Exit These Stocks – BKR, SAGE

Jan 13, 2022 | Team Kalkine
Should You Exit These Stocks – BKR, SAGE

Baker Hughes Company

BKR Details

Baker Hughes Company (NYSE: BKR) is an energy technology company that provides a wide range of products and services to consumers in the energy and industrial value chains. Its operating segments are 1) Oilfield Services (OFS), 2) Oilfield Equipment (OFE), 3) Turbomachinery & Process Solutions (TPS), and 4) Digital Solutions (DS). With operations in over 120 countries, it principally provides products and services in the upstream, middle, and downstream sections of the oil and gas sector. As of January 12, 2022, the company's market capitalization stood at USD 28.11 billion.

Latest News:

  • Key Commercial Contract: On December 16, 2021. BKR was awarded a contract by Santos, Australia's top natural gas producer, to supply turbomachinery equipment for the Moomba Carbon Capture and Storage (CCS) project. The project will serve a gas processing plant and permanently store 1.7 million tonnes of CO2 in depleted natural gas reservoirs in South Australia's onshore Cooper Basin. BKR will deliver gas turbine, compressor, and heat recovery steam generator (HRSG) technology (CO2) to compress the carbon dioxide.

Q3FY21 Results:

  • Flat Topline Growth: The company witnessed YoY growth of 0.87% in total revenues to USD 5.09 billion in Q3FY21 (ended September 30, 2021) compared to USD 5.05 billion in Q3FY20, driven by increased volumes in Oilfield Services, Turbomachinery & Process Solutions, and Digital Solutions segments, partially offset by Oilfield Equipment.
  • Improvement in Net Income: In Q3FY21, net income attributable to shareholders was USD 8.0 million, compared to a net loss of USD 170 million in Q3FY20.
  • Cash and Debt Position: As of September 30, 2021, the company had cash & cash equivalents (including short-term investments) of USD 4.33 billion and total debt of USD 6.76 billion.

Key Risks:

  • Input Risk: BKR's manufacturing operations rely on having enough raw materials, components, and manufacturing capacity to meet its production goals at a reasonable cost and with minimal inventories. Failure to manage the manufacturing process can affect the company's ability to accomplish its goals and revenue projections and prevent raw material shortages or oversupply.

Outlook:

  • Positive Outlook: BKR expects sustained signs of global economic recovery in Q4FY22 and FY22, resulting in increased demand for oil and natural gas. It also anticipates a return to normalcy in offshore markets, and it remains bullish on LNG and natural gas markets in the long run.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

BKR Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

BKR's stock price has increased 31.35% in the past nine months and is currently leaning towards the higher band of its 52-week range of USD 18.75 to USD 27.66. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 66.61. We have valued the stock using the EV/EBITDA multiple-based relative valuation methodology and arrived at a target price of USD 24.49.

Considering the uptick in the stock price, technical indicators, and current valuation, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the closing price of USD 26.73, down 0.85%, as of January 12, 2022.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

 

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