Baker Hughes Earnings: Solid Results Indicative of Strong Performance Over Next Several Years

Baker Hughes BKR had a strong second-quarter performance, thanks to continued strength in international and offshore oil and gas markets as well as elevated liquefied natural gas contracting activity worldwide. Total revenue jumped $6.3 billion with an adjusted EBITDA margin of 14.4%, up 25% and 144 basis points year over year, respectively. We maintain our outlook regarding Baker Hughes’ growth prospects over the next five years and forecast average annual revenue growth of 9% with an average adjusted EBITDA margin of 17%. Our $34 per share fair value estimate and no-moat rating are unchanged following results.

The firm’s two operating segments contributed equally to top-line growth this quarter. Oilfield services and equipment, or OFSE, benefited from uplifted offshore activity amid a frenzy of contracting activity following several years of restrained capital investment. Offshore order intake totaled $1.1 billion, representing roughly one fourth of total order intake for OFSE, and securing steady revenue streams for the next several quarters. Most growth came from North American markets, and we expect the firm’s offshore services to remain a source of strength as international markets—particularly Brazil and Guyana—gain momentum over the next several years.

Elevated LNG demand around the world yielded favorable results for the industrial energy technology, or IET, segment, with revenue exceeding $2.4 billion (a level last seen in 2018). Order intake remains robust, reaching $3.3 billion, and segment book/bill was 1.3 times, the eighth straight quarter above 100%. We expect IET will remain an important source of top-line growth for Baker Hughes through at least 2027. The segment contributes less than 40% of firmwide revenue on average but has made up nearly half of firmwide order intake for the last three years, and the longer-cycle LNG contracts should stabilize revenue volatility.