Baker Hughes has delivered strong gains for long term holders, which puts sharper focus on whether the current share price lines up with the cash the business is expected to generate. With the stock near recent highs and fresh agreements in both traditional and lower carbon energy, the key issue now is how that story translates into an intrinsic value grounded in cash flows.
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Over the past 5 years the share price has climbed 153.6%, so anyone looking at Baker Hughes today is effectively asking how much of that performance is already reflected in the stream of future cash flows.
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New agreements in Venezuela, LNG related power projects in the US, and geothermal work for data centers can shape the size, timing, and risk profile of the cash that Baker Hughes may generate over time.
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If you’d rather focus on earnings, this one’s for you. See why Baker Hughes’s 17.9x P/E tells a different valuation story.
The issue now is whether the current US$55.70 price is supported by Baker Hughes’ cash flows when measured against an intrinsic value estimate based on a Discounted Cash Flow (DCF) approach.
If you want to stress test the same cash flow question you are asking of Baker Hughes across a wider field of opportunities, take a look at 33 high quality undervalued stocks.
Is Baker Hughes a Bargain on Cash Flow?
The Discounted Cash Flow (DCF) model here takes Baker Hughes’ projected free cash flows and discounts them back to today. On the numbers, the business generated about $3.1b in free cash flow over the last twelve months, and the model assumes those cash flows keep growing from that base over the coming decade rather than shrinking.
Future estimates step up to several billions of dollars in annual free cash flow by 2030, which supports an intrinsic value that the DCF projections put substantially above the current US$55.70 share price. The new Venezuela gas and LNG agreements help explain why the cash flow outlook in the model leans toward ongoing growth, even though the market price has not fully closed that gap yet. Find out what Baker Hughes could be worth using our Discounted Cash Flow (DCF) estimate.
The Baker Hughes Narrative: What Would Justify Today’s Price?
Simply Wall St Narratives take the valuation puzzle around Baker Hughes and turn it into clear, written scenarios that explain which paths for growth, margins and earnings would need to occur for the stock to be worth meaningfully more or less than today’s price, all housed on the Community page. Each narrative presents Baker Hughes’ fair value as a thesis about the business that can be tracked over time as new numbers are reported.
One of the top community narratives on Baker Hughes: 34% undervalued
“Record IET orders of US$4.9b in the quarter, a 25% rise in IET orders over the last 4 quarters to US$16.6b…”
Discover why this Narrative puts Baker Hughes at 34% undervalued.
Before acting on Baker Hughes’ valuation, there is one more piece to weigh
Cash flows tell you what Baker Hughes might be worth, but the people steering the business and the way their pay is structured can heavily influence how that plays out over time. See who runs Baker Hughes and how they are paid.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include BKR.
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Source: finance.yahoo.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.
