Baker Hughes Company (NYSE:BKR) last week reported its latest third-quarter results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. Revenues of US$5.0b beat expectations by a respectable 5.9%, although statutory losses per share increased. Baker Hughes lost US$0.25, which was 545% more than what the analysts had included in their models. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following the recent earnings report, the consensus from 27 analysts covering Baker Hughes is for revenues of US$20.1b in 2021, implying a perceptible 6.6% decline in sales compared to the last 12 months. Earnings are expected to improve, with Baker Hughes forecast to report a statutory profit of US$0.52 per share. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$19.8b and earnings per share (EPS) of US$0.43 in 2021. Although the revenue estimates have not really changed, we can see there's been a massive increase in earnings per share expectations, suggesting that the analysts have become more bullish after the latest result.
There's been no major changes to the consensus price target of US$20.45, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock's valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Baker Hughes, with the most bullish analyst valuing it at US$26.00 and the most bearish at US$16.00 per share. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 6.6%, a significant reduction from annual growth of 13% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 5.3% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Baker Hughes is expected to lag the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Baker Hughes' earnings potential next year. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Baker Hughes' revenues are expected to perform worse than the wider industry. The consensus price target held steady at US$20.45, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn't be too quick to come to a conclusion on Baker Hughes. Long-term earnings power is much more important than next year's profits. We have forecasts for Baker Hughes going out to 2024, and you can see them free on our platform here.
It is also worth noting that we have found 2 warning signs for Baker Hughes that you need to take into consideration.
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email firstname.lastname@example.org.