Baker Hughes’s Perspective in Q1: KEY Takeaways

Baker Hughes expects the uncertainty in the crude oil market to continue in 2H 2025, while it is more bullish on the natural gas market. It also expects cost overruns following the US tariff. It plans to mitigate the tariff effect by reducing input costs and optimizing its global manufacturing footprint. The company’s performance deteriorated in Q1. The stock is reasonably valued versus its peers.

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The Energy Market and BKR

We have already discussed Baker Hughes's (BKR) Q1 2025 financial performance in our recent article . Here is an outline of its strategies and outlook. In 2025, BKR sees a steep decline in upstream capex. In North America, the spending cut can amount to a “low-double digit,” while internationally, it may decrease by “mid- to high single-digit.” Uncertainty in the energy market over the tariff policy and a higher OPEC production getting back to the supply channel can disrupt the equilibrium, resetting the crude oil price at a lower rate. The recent oil price volatility can extend to 2H 2025, particularly in the US onshore.

BKR, however, has a more bullish view of the natural gas market. It expects demand for natural gas to continue due to its increased use in LNG, gas infrastructure, and data centers. The repeal of the LNG permitting moratorium and a higher US LNG export target will push natural gas production. BKR’s US project orders totaled $1.7 billion over the past two quarters. It plans to exceed its installed capacity target of 800 MTPA by the end of the decade.

The Tariff Effects

The tariff-related policy announcements can have a significant impact on BKR’s outlook. The company estimates that nearly 80% of the OFSE segment revenue is derived from the international markets. So, cost overruns following the US tariff hike are likely. The key areas of concern in connection with the tariff raises are Industrial Tech's U.S. volumes exported to China, supply of critical equipment to US projects from Italy, and higher steel and aluminum tariffs.

BKR has engaged with the US supply chain partners to increase domestic sourcing to mitigate the adverse effects. In the IET segment, too, the company is looking for alternatives to reduce input costs and optimize its global manufacturing footprint. With increased productivity gains, it aims to blunt the effects of the tariff. Overall, it expects its EBITDA to decrease by $100 million to $200 million if the tariff rates are reimposed after the 90-day moratorium.

Segment Forecast

In IET, it expects that adjusted EBITDA will increase by 10% quarter-over-quarter. The factors that will affect BKR are backlog conversion in GTE and aero-derivative supply chain tightness. In OFSE, its adjusted EBITDA can improve by 4.3% due to recovery in international and U.S. markets, SSPS backlog execution, and the pace of activity in Mexico. However, lower upstream spending and tariff-related cost inflation can impact its results negatively in 2025.

Q1 Financial Results

As discussed in the Q1 short article, in the IET segment, revenues decreased by 16% quarter-over-quarter, driven primarily by lower revenues from Gas Technology Services. EBITDA went down by 22% in Q1. Revenues in the Oilfield Services & Equipment segment declined less steeply in Q1 (10% down).

BKR's cash flow from operations decreased by 10% in Q1 2025 compared to a year ago. Debt-to-equity (0.35x) remained unchanged compared to December 31, 2024.

Relative Valuation

Baker Hughes is currently trading at an EV/EBITDA multiple of 8.7x. Based on sell-side analysts' EBITDA estimates, the forward EV/EBITDA multiple is 8.67x. The current multiple is lower than its five-year average EV/EBITDA multiple of 10.2x.

BKR's forward EV/EBITDA multiple contraction versus the current EV/EBITDA is steeper than peers because the company's EBITDA is expected to increase more sharply in the next four quarters. This typically results in a higher EV/EBITDA multiple than peers. The stock's EV/EBITDA multiple is higher than its peers' (HAL, SLB, and FTI) average. So, the stock is reasonably valued compared to its peers.

Final Commentary

Baker Hughes’s outlook is fraught with a steep decline in upstream capex in North America. On top of that, uncertainty in the energy market over the tariff policy and a higher OPEC production can keep international energy activity under pressure. On the other hand, the natural gas market is robust, coming from higher LNG use, natural gas infrastructure building, and the requirements of power from the data centers.

BKR’s near-term challenges include dealing with the recent tariff-related policy changes. Its oilfield services operations rely heavily on international operations, and therefore, a tariff hike can affect its margin adversely. The company has taken measures to offset the negative impact. Despite the challenges, its EBITDA growth can recover in Q2. Also, the company's cash flows decreased in Q1. The stock appears to be reasonably valued versus its peers.

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