My analysis of Baker Hughes; Greetings from Belgrade, Serbia
In yesterday's e-mail, I shared the 95-slide presentation on oilfield services and industrial technology company Baker Hughes (BKR) that won second place at the 19th annual Pershing Square Challenge.
It's a good stock idea, and the three Columbia Business School students who wrote the pitch did an excellent job.
So today, I'd like to analyze the company through my "first look" lens.
I'll start by looking at its historical and current financials. Then I'll calculate its valuation to see if it's a good opportunity right now...
Baker Hughes went public in 1987, and the stock has had many booms over the past four decades – like the one it's having currently. But it has also had several busts, as you can see in this chart:
The company's revenue and operating income have been cyclical. But it's good to see that it has remained profitable even during the worst periods for the energy sector:
As you can see above, the company has also benefited from an up cycle since the pandemic lows of 2020, which explains the stock's more than 600% return since then.
The cash-flow statement tells a similar story, with a strong improvement since 2020:
The company's capital allocation appears unusual because General Electric ("GE") merged its oil and gas division with Baker in 2017. This created a new, combined company in which GE held a 62.5% controlling stake.
Since then, Baker hasn't done much with its cash flow. It has paid a small dividend, made a few minor acquisitions, and occasionally bought back a bit of stock:
The company has generated far more cash than it has returned to shareholders via dividends and share repurchases in the past few years. Plus, it generated $1.5 billion from divestitures in the first quarter of 2026.
So the company now has a strong balance sheet with almost no net debt:
Beginning in 2018, GE initiated a multiyear sell-down of its 62.5% controlling stake to raise cash and pay down its own corporate debt, resulting in a huge BKR share-count increase. But since then, it has been flat:
In summary, Baker Hughes' financials are strong. It has been growing nicely, generates solid free cash flow ("FCF"), and has a strong balance sheet.
As for valuation, analysts expect the company to earn $2.30 per share this year. At today's price of around $66, that means the stock is trading at 28.7 times earnings.
However, analysts expect earnings to jump to $2.79 per share next year, which would make the forward 2027 price-to-earnings ratio slightly lower, at 23.7 times.
I'm disappointed to see the stock trading at such high multiples. I was hoping to see it in the high teens. It was trading at those lower levels as recently as last October. But since then, the stock is up 50% to almost a 10-year high.
Baker Hughes is a good company, but not a great one. So the stock doesn't look compelling here. But I think there's a good chance for a better entry point in the future.
My team and I at Stansberry Research will continue to follow the company. If we decide it's time to buy, as always, Stansberry's Investment Advisory subscribers will be the first to know. You can become one by clicking here.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. I spent the day in Belgrade, Serbia yesterday – my 88th country! I visited the Church of Saint Sava, the Nikola Tesla Museum, and an old fortress:
