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On Thursday, JPMorgan reasserted its confidence in Baker Hughes (NASDAQ:BKR), maintaining an Overweight stock rating and a steady price target of $50.00. This aligns with the broader Wall Street sentiment, as InvestingPro data shows a strong analyst consensus with price targets ranging from $34 to $55. The company currently trades near Fair Value levels, with a perfect Piotroski Score of 9, indicating exceptional financial strength. The firm’s analyst highlighted the company’s business model, particularly the "razor-razor blade" nature of the liquefied natural gas (LNG) project cycle, as a key aspect of its attractiveness. This model includes Customer Service Agreements (CSAs) to maintain and upgrade equipment, ensuring a long-term recurring revenue stream with premium margins.
Baker Hughes’ Gas Tech Services segment has been a significant contributor to the company’s Industrial Energy Technology (IET) revenue, accounting for approximately 25%. Remarkably, this segment has been responsible for nearly half of the IET’s EBITDA. The company’s overall financial performance remains robust, with total revenue reaching $27.3 billion and an EBITDA of $4.3 billion in the last twelve months. InvestingPro analysis reveals the company operates with a moderate debt-to-equity ratio of 0.37, maintaining financial flexibility for future growth. The analyst pointed out that while CSAs for LNG provide a minimal recurring revenue stream for maintenance, the substantial revenue potential usually materializes after 5-8 years, and even more so after 12 to 15 years and 18-20 years, when major inspections are due.
The analyst’s report also referenced a figure indicating a substantial increase in global LNG supply additions, with over 150 million tonnes per annum (mmtpa) added between 2016 and 2020. This growth is expected to provide tailwinds for higher services revenue as these projects enter phases requiring more intensive maintenance and upgrades.
Looking ahead, Baker Hughes’ LNG install base is anticipated to grow by 50% by the year 2028. This expansion is likely to bolster higher services revenues in the future and enhance the company’s margin profile. The report notes that margins on services can be more than double those on equipment, suggesting a positive outlook for Baker Hughes’ profitability. With a current gross profit margin of 21.1% and revenue growth of 11.1% year-over-year, the company shows strong momentum. For deeper insights into Baker Hughes’ growth potential and 10+ additional exclusive ProTips, access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Baker Hughes, a global energy technology firm, reported a 20% year-on-year EBITDA growth for the third consecutive quarter, despite a slight revenue shortfall of over $200 million due to project delays. These financial results were accompanied by a series of strategic moves, including securing a contract for a liquefied natural gas (LNG) project in Louisiana and expanding operations in Namibia with a new liquid mud plant at Walvis Bay Port.
The company also secured substantial contracts with Petrobras, a Brazilian state-run oil company, to supply flexible pipe systems for Brazil’s pre-salt oilfields. Goldman Sachs and RBC Capital Markets, two prominent financial firms, have responded positively to these developments by raising their stock targets for Baker Hughes to $52 and $49, respectively, citing the company’s diverse portfolio and robust revenue growth.
These recent developments underscore Baker Hughes’ strategic growth and its ability to navigate challenges in the energy market. The company’s strong financial position, with $2.24 billion in net income and a healthy 21.1% gross profit margin, positions it well for these major projects. Analysts maintain a bullish outlook on Baker Hughes, given its revenue growth of 11.08% and moderate debt levels.
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