BKR: IET Outperformance And Divestitures Will Drive Upside In Coming Cycle

Analysts have nudged their price target on Baker Hughes modestly higher, lifting fair value by about $0.57 to roughly $53.14. They cite continued outperformance in the Industrial and Energy Technology unit, improving long cycle energy activity, and a supportive backlog and divestiture strategy despite a still choppy macro backdrop.

Analyst Commentary

Bullish analysts remain constructive on Baker Hughes, pointing to resilient execution in Industrial and Energy Technology, disciplined capital allocation, and a growing backlog that underpins multi year earnings visibility. Despite near term macro uncertainty, they argue the setup supports incremental upside to both earnings and valuation multiples.

At the same time, more cautious voices underscore that the stock is not immune to cyclicality in oil and gas activity and sentiment driven swings around commodity prices, which could cap near term rerating potential even as fundamentals improve.

Bullish Takeaways

• Bullish analysts highlight the IET segment as a core value driver, noting sustained outperformance since its 2022 reorganization and viewing it as a justification for higher price targets and a premium relative to traditional oilfield service peers.
• They see the divestiture strategy and portfolio reshaping as catalysts for multiple expansion, arguing that a sharper focus on higher margin, technology driven businesses should support more durable free cash flow growth.
• Improving long cycle and offshore activity, together with expectations for higher Saudi and deepwater demand into 2026, are viewed as structural tailwinds that can extend the current upcycle and support continued earnings growth.
• The company’s growing backlog and deep bench of operational talent are cited as reasons to believe execution in IET and other segments can remain intact, supporting confidence in out year estimates baked into higher targets in the mid to high $50s range.

Bearish Takeaways

• Bearish analysts caution that the recent pullback in WTI below $60 per barrel and renewed supply demand concerns could pressure near term activity levels and weigh on sentiment, limiting further near term multiple expansion.
• They warn that the macro backdrop may again set a cautious tone for upcoming earnings seasons, with investors focused on the risk of incremental activity cuts rather than the longer term recovery narrative.
• Shorter cycle U.S. land exposure is viewed as less attractive, with some expecting meaningful upside to be more of a 2026 event, which could delay realization of the full earnings power implied by recent target hikes.
• Management changes in the IET leadership team introduce some execution risk in a key growth engine. While the strategic playbook is expected to remain intact, any missteps could challenge the high expectations embedded in current valuations.

What's in the News

• Ananym Capital is publicly pressuring Baker Hughes to spin off its Oilfield Services and Equipment business, arguing that a breakup could unlock roughly 60% upside and sharpen capital allocation across the two core segments (Bloomberg, company statement).
• Baker Hughes and NMDC Energy signed a strategic MoU in Saudi Arabia to localize key Baker Hughes products and offshore solutions, including an Emergency Pipeline Repair System and logistics base, to serve the broader MENATI region (company announcement).
• Baker Hughes secured a major award from Bechtel to supply primary liquefaction equipment for Train 5 at NextDecade's Rio Grande LNG facility in Texas, expanding its high margin LNG turbomachinery footprint and adding about 6 MTPA of capacity (company announcement).
• The company won an expanded multi year integrated underbalanced coiled tubing drilling contract from Aramco, growing its fleet from four to 10 units to support gas development across Saudi natural gas fields (company announcement).
• The Trump administration is reportedly drafting a plan to reopen California offshore drilling lease sales from 2027 to 2030, a potential medium term demand catalyst for offshore service providers including Baker Hughes (Washington Post).

Valuation Changes

• Fair Value: risen slightly from approximately $52.57 to $53.14 per share, implying a modest upward revision in intrinsic value.
• Discount Rate: increased marginally from about 7.22% to 7.25%, reflecting a slightly higher required return in the valuation model.
• Revenue Growth: edged down modestly from roughly 2.97% to 2.92%, signaling a small tempering of long term top line expectations.
• Net Profit Margin: improved slightly from around 10.19% to 10.21%, indicating a minor upgrade to expected profitability levels.
• Future P/E: ticked up from about 20.51x to 20.75x, suggesting a small expansion in the forward valuation multiple embedded in the analysis.