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Factors to Know Ahead of Baker Hughes' (BKR) Q1 Earnings

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Baker Hughes Company (BKR - Free Report) is set to report first-quarter 2020 results on Apr 22, before the opening bell.

The oilfield service player beat the Zacks Consensus Estimate for earnings in two of the prior four quarters, delivering a negative earnings surprise of 3.3%, on average. This is depicted in the graph below:

Baker Hughes Company Price and EPS Surprise

Baker Hughes Company Price and EPS Surprise

Baker Hughes Company price-eps-surprise | Baker Hughes Company Quote

In the last reported quarter, Baker Hughes’ earnings per share of 27 cents missed the Zacks Consensus Estimate of 31 cents due to lower contributions from flexible pipe and surface pressure control businesses. Let’s see how things have shaped up prior to the earnings announcement.

Trend in Estimate Revision

The Zacks Consensus Estimate for first-quarter earnings per share has declined from 15 cents to 9 cents in the past 30 days. The figure indicates a decrease of 40% from the year-ago quarter.

Further, the Zacks Consensus Estimate for revenues of $5.64 billion suggests a 0.4% increase from the prior-year quarter.

Factors to Note

Baker Hughes’ earnings depend heavily on exploration and production (‘E&P’) companies’ spending. In the first quarter, the slump in oil prices slowed down drilling activity, injecting uncertainty into the E&P spending outlook. As supplier of technology, solution and parts to the E&P sector, the bearish sentiment is likely to hit Baker Hughes’ results. During the first quarter of 2020, U.S. rig count decreased by 77 (from 805 to 728). This might have hurt the company’s Oilfield Services unit.

With the coronavirus pandemic destroying energy demand globally, hydrocarbon production is expected to have taken a hit in the first quarter. This, in turn, might have affected the company’s Oilfield Equipment, Turbomachinery & Processing Solutions and Digital Solutions businesses.

However, the scenario is a little different in the international market. While international E&Ps pulled back spending due to continued weak oil prices, the degree of decline is likely to have been less than North America. This is because most of these projects are backed by national oil companies and/or integrated majors that consider long-term horizons. This might have positively impacted Baker Hughes’ profits.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Baker Hughes this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here as you will see below.   

Earnings ESP: Earnings ESP represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Baker Hughes has an Earnings ESP of -1.28% as the Most Accurate Estimate stands lower than the Zacks Consensus Estimate of 9 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Baker Hughes currently carries a Zacks Rank #3.

Stocks to Consider

While earnings beat looks uncertain for Baker Hughes, here are some companies from the Energy space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming quarterly reports:

Southwestern Energy Company has an Earnings ESP of +28.00% and is a Zacks #2 Ranked player. The company is scheduled to release first-quarter results after the market closes on Apr 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

Enbridge Inc. (ENB - Free Report) has an Earnings ESP of +2.52% and a Zacks Rank of 3. It is scheduled to report first-quarter results on May 7.

QEP Resources, Inc. has an Earnings ESP of +26.98% and holds a Zacks Rank #3. It is set to report first-quarter results on Apr 29.

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