Baker Hughes Company (BKR - Free Report) has surged 42.4% quarter to date, surpassing the industry’s 35.9%. Notably, the oilfield service player is likely to see earnings growth of 8% in the next five years.
Factors in Favor
The company, carrying a Zacks Rank #3 (Hold), is among the leading oilfield service and equipment providers in the world. Notably, Baker Hughes’ business is quite diversified and spreads across 120 countries in the globe.
In the March quarter of 2020, the company won oilfield services orders worth $3.1 billion, up 5% year over year. Baker Hughes is well-positioned to convert all orders and backlogs to cash flows, making it a profitable bet in the oilfield service space.
Moreover, Baker Hughes’ debt-to-capitalization ratio is at 0.26, comprehensively lower than the industry’s 0.32. In fact, the company’s ratio has consistently been lower than the industry over the past few years, which reflects lower debt exposure. Notably, Baker Hughes’ cash balance of $3,010 million can easily clear short-term debt of $210 million, which suggests a strong liquidity profile. Also, the oilfield service player’s cash balance can repay half of long-term debt, recorded at $6,285 million, which is quite encouraging.
The company’s short-term business outlook seems bleak since the coronavirus pandemic has dented global energy demand. With oil prices continue to trade in the bearish territory, there has been little incentives by explorers and producers to hire oilfield service firms for upstream activities. In fact, to survive the pandemic, the explorers are curtailing operations and capital spending, thus hurting the demand for oilfield service and equipment.
Weak business activities have also put the company’s dividend payments at risks. Since 2017, the Houston, TX-based oilfield service firm has not increased its dividends.
Stocks to Consider
A few better-ranked players in the energy sector are Murphy USA Inc (MUSA - Free Report) , QEP Resources, Inc. (QEP - Free Report) and CNX Resources Corporation (CNX - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Murphy USA is likely to see earnings growth of 7% in the next five years.
QEP Resources has witnessed upward earnings estimate revisions for 2020 in the past 30 days.
CNX Resources has witnessed upward estimate revisions for 2020 bottom line in the past 60 days.
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