On August 10, 2023, Baker Hughes Co (BKR, Financial) closed at $35.13 per share, experiencing a daily loss of 2.71%. Despite this, the stock has seen a 3-month gain of 27.63%. With an Earnings Per Share (EPS) (EPS) of 1.13, the question arises: is the stock significantly overvalued? This article provides a comprehensive valuation analysis of Baker Hughes Co, aiming to answer this crucial question. Read on for an in-depth exploration of the company's value, financial strength, profitability, and growth.
Company Overview
Baker Hughes Co, a global leader in oilfield services and oilfield equipment, has a strong presence in the artificial lift, specialty chemicals, and completions markets. The company also focuses on industrial power generation, process solutions, and industrial asset management, with high exposure to the liquid natural gas market and broader industrials end markets. With a market capitalization of $35.50 billion and sales of $23.30 billion, Baker Hughes Co's stock price is compared to the GF Value, an estimate of fair value, for a deeper understanding of the company's value.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It's calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, the stock is considered overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus' valuation method, Baker Hughes Co (BKR, Financial) is believed to be significantly overvalued. The stock's current price of $35.13 per share is significantly above the GF Value Line, indicating that the stock may be overvalued and have poor future returns. As such, the long-term return of Baker Hughes Co's stock is likely to be much lower than its future business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Baker Hughes Co has a cash-to-debt ratio of 0.42, ranking worse than 56.03% of companies in the Oil & Gas industry. Based on this, GuruFocus ranks Baker Hughes Co's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk. Baker Hughes Co has been profitable for 3 years over the past 10 years. With revenues of $23.30 billion and an EPS of $1.13 over the past 12 months, its operating margin of 9.89% is better than 52.12% of companies in the Oil & Gas industry. GuruFocus ranks Baker Hughes Co's profitability as fair.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. However, the average annual revenue growth of Baker Hughes Co is -20.6%, ranking worse than 89.45% of companies in the Oil & Gas industry. Its 3-year average EBITDA growth is -32.1%, ranking worse than 90.92% of companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. During the past 12 months, Baker Hughes Co's ROIC was 5.25, while its WACC came in at 8.35.
Conclusion
Overall, Baker Hughes Co (BKR, Financial) stock is believed to be significantly overvalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 90.92% of companies in the Oil & Gas industry. To learn more about Baker Hughes Co stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
