Last week, you might have seen that Baker Hughes Company (NYSE:BKR) released its annual result to the market. The early response was not positive, with shares down 3.2% to US$22.86 in the past week. It looks like a pretty bad result, all things considered. Although revenues of US$24b were in line with analyst predictions, statutory earnings fell badly short, missing estimates by 66% to hit US$0.23 per share. Following the result, 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. We thought readers would find it interesting to see analysts' latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the most recent consensus for Baker Hughes from 23 analysts is for revenues of US$25.5b in 2020, which is an okay 7.0% increase on its sales over the past 12 months. Statutory earnings per share are expected to leap 349% to US$1.04. Yet prior to the latest earnings, analysts had been forecasting revenues of US$25.5b and earnings per share (EPS) of US$1.13 in 2020. Analysts seem to have become a little more negative on the business after the latest results, given the small dip in their earnings per share forecasts for next year.
The consensus price target held steady at US$29.12, with analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Baker Hughes, with the most bullish analyst valuing it at US$34.00 and the most bearish at US$19.50 per share. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. We would highlight that Baker Hughes's revenue growth is expected to slow, with forecast 7.0% increase next year well below the historical 11%p.a. growth over the last five years. Juxtapose this against the other companies in the market with analyst coverage, which are forecast to grow their revenues (in aggregate) 3.4% next year. So it's pretty clear that, while Baker Hughes's revenue growth is expected to slow, it's still expected to grow faster than the market itself.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Baker Hughes. Happily, there were no major changes to revenue forecasts, with analysts still expecting the business to grow faster than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
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 2023, and you can see them free on our platform here.
It might also be worth considering whether Baker Hughes's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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