Baker Hughes Co (BKR, Financial) has shown a slight daily gain of 0.24% and experiences a 3-month loss of -3.47%, with an Earnings Per Share (EPS) of 1.66. Investors may ponder if the stock, currently trading at a price of $33.97, is modestly overvalued. The following analysis will delve into the valuation of Baker Hughes Co (BKR) to answer this question and provide a clearer picture of its financial standing.
Company Introduction
Baker Hughes Co is a leading entity in the oilfield services sector, with a strong foothold in markets such as artificial lift, specialty chemicals, and completions. The company boasts a significant presence in industrial power generation, process solutions, and industrial asset management, especially within the liquid natural gas market. With a current market cap of $34.20 billion and a GF Value of $28.71, understanding the disparity between the stock price and its intrinsic value is crucial for investors.
Summarize GF Value
The GF Value is a unique metric that estimates the intrinsic value of a stock by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance projections. The GF Value Line, which reflects this fair value estimate, suggests that Baker Hughes Co's stock might be modestly overvalued at the moment. If a stock trades significantly above this line, it may indicate overvaluation and potentially lower future returns. Conversely, trading below the line could signal undervaluation and the prospect of higher future returns.
Given its current valuation, Baker Hughes Co's long-term return could be less than its business growth, indicating that it is relatively overvalued.
Financial Strength
Assessing a company's financial strength is essential before investing. Baker Hughes Co's cash-to-debt ratio stands at 0.48, which, although not the strongest in the Oil & Gas industry, still reflects a fair financial position with a score of 6 out of 10.
Profitability and Growth
Investing in profitable companies, especially those with long-term consistency, is generally less risky. Baker Hughes Co has been profitable for 3 out of the past 10 years, with a solid operating margin of 10.25%, which is competitive within its industry. However, the company's growth rates over the past three years have been less impressive, lagging behind the majority of its peers in the Oil & Gas sector.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) is another way to assess profitability. Ideally, the ROIC should exceed the WACC, indicating efficient capital management. For Baker Hughes Co, the ROIC is currently lower than the WACC, suggesting that the company may not be generating sufficient returns on its investments.
Conclusion
In conclusion, the stock of Baker Hughes Co (BKR, Financial) appears to be modestly overvalued based on GuruFocus' valuation methods. While the company maintains fair financial health and profitability, its growth rates are not as robust as those of some competitors. For a more detailed look at Baker Hughes Co's financials, investors can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
