With a daily gain of 2.88% and a three-month loss of 8.02%, Baker Hughes Co (BKR, Financial) presents an interesting case for investors examining stock valuation. The company's Earnings Per Share (EPS) stands at $1.66, but the question remains: is the stock modestly overvalued? To address this, a detailed valuation analysis is essential. Read on to understand the intrinsic value of Baker Hughes Co (BKR) and whether it aligns with its current market performance.
Company Introduction
Baker Hughes Co is a global powerhouse in oilfield services and equipment, known for its leadership in artificial lift, specialty chemicals, and completions markets. The company also has a significant presence in industrial power generation, process solutions, and industrial asset management, with a strong foothold in the liquid natural gas market and broader industrial end markets. With a current stock price of $33.55, a market cap of $33.80 billion, and a GF Value of $28.93, an analysis of the company's valuation is imperative to determine if the stock is trading at a fair price.
Summarize GF Value
The GF Value is an exclusive measure of a stock's intrinsic value, taking into account historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. Baker Hughes Co (BKR, Financial) is currently considered modestly overvalued based on this calculation. The GF Value Line suggests the stock should be trading at its fair value, but with the current price above this line, the future return may not be as promising.
Due to the relative overvaluation, investors might anticipate a lower long-term return on Baker Hughes Co's stock compared to its business growth.
Financial Strength
Investing in companies with robust financial strength is critical to avoid capital loss. Baker Hughes Co's cash-to-debt ratio of 0.48 ranks in the lower half of the Oil & Gas industry. GuruFocus awards the company a financial strength rating of 6 out of 10, indicating a fair balance sheet.
Profitability and Growth
Profitable companies, particularly those with consistent long-term profitability and high profit margins, pose less investment risk. Baker Hughes Co has been profitable for 3 out of the past 10 years, with a revenue of $24.60 billion and an Earnings Per Share (EPS) of $1.66 over the past twelve months. Its operating margin of 10.25% ranks above average in the industry. However, the company's growth rates are less impressive, with its 3-year average revenue and EBITDA growth rates lagging behind the majority of its peers.
ROIC vs WACC
An analysis of Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) is essential to understand a company's profitability. Ideally, ROIC should exceed WACC. For Baker Hughes Co, the ROIC is currently at 6.17, which is below the WACC of 7.9, indicating that the company may not be generating sufficient cash flow relative to its capital investment.
Conclusion
Overall, Baker Hughes Co (BKR, Financial) appears to be modestly overvalued. The company maintains a fair financial condition and profitability but faces challenges in growth, ranking below a significant portion of its industry peers. For a more detailed insight into Baker Hughes Co's financials, interested investors can explore the 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.
