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.

Expansion into energy transition markets and digital infrastructure positions Baker Hughes for higher-margin growth and recurring revenue.
Portfolio optimization and technology-driven offerings enhance margins, recurring revenue, and long-term earnings durability.
Heavy reliance on volatile oil and gas markets, cost pressures from tariffs and supply issues, plus exposure to policy changes and execution risks, threaten consistent profitability and stable growth.

Catalysts

About Baker Hughes

Provides a portfolio of technologies and services to energy and industrial value chain worldwide.What are the underlying business or industry changes driving this perspective?

Baker Hughes is actively expanding into fast-growing markets like distributed power solutions for data centers and new energy infrastructure (hydrogen, CCS, geothermal), capitalizing on the robust increase in global energy demand-especially from digital infrastructure and emerging markets-which positions the company for long-term recurring revenue growth and higher-margin opportunities.
The company's strong momentum in securing large-scale service contracts, framework agreements, and technology-driven orders (such as for data centers, LNG, CCS, and recurring gas tech services) is driving an all-time high IET backlog, building strong visibility into future revenue and supporting sustained earnings durability.
Portfolio optimization-highlighted by recent divestitures and targeted acquisitions such as CDC-enables Baker Hughes to recycle capital into higher-growth, higher-margin, and less oil-price-sensitive segments, structurally improving margins and setting up future EBITDA/earnings expansion.
Increasing customer focus on decarbonization, efficiency, and grid reliability is accelerating demand for Baker Hughes' proprietary digital, automation, and energy transition technologies (e.g., Cordant Solutions, Leucipa, hydrogen-ready NovaLT turbines), enhancing pricing power, expanding service attach rates, and increasing the mix of high-margin recurring revenue, which should support margin expansion.
Implementation of Baker Hughes' business system and structural cost initiatives is driving multi-year improvements in operating leverage and net margins (demonstrated by 600 bps margin expansion over 5 years), with management targeting further gains that will compound the impact of revenue growth on long-term earnings and free cash flow.

Baker Hughes Earnings and Revenue Growth

Baker Hughes Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Baker Hughes's revenue will grow by 1.8% annually over the next 3 years.
Analysts assume that profit margins will shrink from 11.0% today to 10.0% in 3 years time.
Analysts expect earnings to reach $2.9 billion (and earnings per share of $3.01) by about September 2028, down from $3.0 billion today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.2x on those 2028 earnings, up from 14.7x today. This future PE is greater than the current PE for the US Energy Services industry at 15.0x.
Analysts expect the number of shares outstanding to decline by 0.37% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.73%, as per the Simply Wall St company report.

Baker Hughes Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The company faces ongoing risks from global trade policy shifts, including newly announced and potential future tariffs (e.g., U.S.-China, steel, aluminum, and copper tariffs), which could lead to additional cost pressures, supply chain disruptions, and margin compression not fully captured in current guidance; this threatens future EBITDA margins and net earnings.
While Baker Hughes is successfully diversifying into new energy and digital solutions, the business remains significantly exposed to the volatile upstream oil and gas market, which is experiencing high single
to low double-digit spending declines in key regions; this structural exposure risks sustained revenue headwinds and unpredictable earnings if decarbonization efforts accelerate or oil demand falters.
The company's long-term growth forecasts rely heavily on expanding LNG, natural gas, and data center power solutions, but these sectors are vulnerable to policy shifts favoring renewables, electrification, or stricter ESG regulation; faster-than-anticipated adoption of clean energy solutions and electrification could erode the addressable market and pressure long-term revenue growth.
Persistent cost inflation, supply chain tightness in gas tech equipment, and increasing customer expectations for lower service costs contribute to ongoing pricing pressure and potential margin erosion, particularly if Baker Hughes cannot maintain operational efficiencies at the current pace; these factors threaten both net margins and free cash flow generation.
The continued need for portfolio optimization, including active divestiture of non-core assets and frequent M&A, introduces execution risk and may not yield sufficient improvement in recurring revenue or margin profiles; integration challenges, missteps in capital allocation, or underperformance of new acquisitions could adversely impact earnings stability and overall financial performance.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $50.545 for Baker Hughes based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $60.0, and the most bearish reporting a price target of just $37.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $29.1 billion, earnings will come to $2.9 billion, and it would be trading on a PE ratio of 21.2x, assuming you use a discount rate of 7.7%.
Given the current share price of $45.45, the analyst price target of $50.55 is 10.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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