Intrinsic value of Baker Hughes - BHI

Previous Close

$59.65

  Intrinsic Value

premium content

  Rating & Target

premium content

  Value-price divergence*

premium content

Previous close

$59.65

 
Intrinsic value

$5.00

 
Up/down potential

-92%

 
Rating

str. sell

 
Value-price divergence* premium content

Premium access subscription - $499/yr

please register and log in before paying

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of BHI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 25.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -37.49
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  9,841
  10,038
  10,269
  10,533
  10,829
  11,157
  11,517
  11,910
  12,334
  12,792
  13,283
  13,808
  14,368
  14,965
  15,599
  16,272
  16,985
  17,740
  18,538
  19,381
  20,272
  21,212
  22,203
  23,247
  24,348
  25,507
  26,727
  28,012
  29,363
  30,785
  32,281
Variable operating expenses, $m
 
  10,943
  11,185
  11,462
  11,773
  12,118
  12,496
  12,908
  13,353
  13,833
  14,348
  14,491
  15,079
  15,706
  16,371
  17,077
  17,826
  18,618
  19,456
  20,341
  21,275
  22,262
  23,302
  24,398
  25,553
  26,769
  28,050
  29,398
  30,817
  32,309
  33,879
Fixed operating expenses, $m
 
  1,020
  1,045
  1,072
  1,098
  1,126
  1,154
  1,183
  1,212
  1,243
  1,274
  1,306
  1,338
  1,372
  1,406
  1,441
  1,477
  1,514
  1,552
  1,591
  1,630
  1,671
  1,713
  1,756
  1,800
  1,845
  1,891
  1,938
  1,987
  2,036
  2,087
Total operating expenses, $m
  11,703
  11,963
  12,230
  12,534
  12,871
  13,244
  13,650
  14,091
  14,565
  15,076
  15,622
  15,797
  16,417
  17,078
  17,777
  18,518
  19,303
  20,132
  21,008
  21,932
  22,905
  23,933
  25,015
  26,154
  27,353
  28,614
  29,941
  31,336
  32,804
  34,345
  35,966
Operating income, $m
  -1,862
  -1,925
  -1,962
  -2,001
  -2,043
  -2,086
  -2,132
  -2,181
  -2,231
  -2,284
  -2,340
  -1,989
  -2,049
  -2,112
  -2,178
  -2,247
  -2,318
  -2,392
  -2,469
  -2,550
  -2,634
  -2,721
  -2,812
  -2,907
  -3,005
  -3,107
  -3,214
  -3,325
  -3,440
  -3,560
  -3,685
EBITDA, $m
  -696
  -873
  -895
  -917
  -940
  -962
  -985
  -1,008
  -1,032
  -1,055
  -1,079
  -1,103
  -1,128
  -1,152
  -1,177
  -1,203
  -1,228
  -1,254
  -1,280
  -1,307
  -1,333
  -1,360
  -1,388
  -1,415
  -1,443
  -1,471
  -1,499
  -1,528
  -1,556
  -1,585
  -1,614
Interest expense (income), $m
  217
  176
  184
  193
  203
  215
  227
  241
  257
  273
  291
  310
  330
  352
  375
  400
  426
  453
  483
  513
  546
  581
  617
  655
  696
  739
  784
  831
  881
  933
  988
Earnings before tax, $m
  -2,040
  -2,101
  -2,146
  -2,194
  -2,246
  -2,301
  -2,360
  -2,422
  -2,488
  -2,557
  -2,630
  -2,299
  -2,380
  -2,464
  -2,553
  -2,646
  -2,743
  -2,845
  -2,952
  -3,063
  -3,180
  -3,302
  -3,429
  -3,562
  -3,701
  -3,846
  -3,997
  -4,155
  -4,321
  -4,493
  -4,673
Tax expense, $m
  696
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -2,738
  -2,101
  -2,146
  -2,194
  -2,246
  -2,301
  -2,360
  -2,422
  -2,488
  -2,557
  -2,630
  -2,299
  -2,380
  -2,464
  -2,553
  -2,646
  -2,743
  -2,845
  -2,952
  -3,063
  -3,180
  -3,302
  -3,429
  -3,562
  -3,701
  -3,846
  -3,997
  -4,155
  -4,321
  -4,493
  -4,673

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,572
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  19,034
  14,762
  15,101
  15,489
  15,925
  16,408
  16,937
  17,514
  18,139
  18,811
  19,533
  20,306
  21,130
  22,007
  22,940
  23,929
  24,978
  26,088
  27,262
  28,502
  29,812
  31,194
  32,651
  34,187
  35,805
  37,510
  39,305
  41,194
  43,181
  45,273
  47,472
Adjusted assets (=assets-cash), $m
  14,462
  14,762
  15,101
  15,489
  15,925
  16,408
  16,937
  17,514
  18,139
  18,811
  19,533
  20,306
  21,130
  22,007
  22,940
  23,929
  24,978
  26,088
  27,262
  28,502
  29,812
  31,194
  32,651
  34,187
  35,805
  37,510
  39,305
  41,194
  43,181
  45,273
  47,472
Revenue / Adjusted assets
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
Average production assets, $m
  5,933
  6,053
  6,192
  6,351
  6,530
  6,728
  6,945
  7,182
  7,438
  7,713
  8,009
  8,326
  8,664
  9,024
  9,406
  9,812
  10,242
  10,697
  11,178
  11,687
  12,224
  12,791
  13,388
  14,018
  14,682
  15,381
  16,116
  16,891
  17,706
  18,564
  19,466
Working capital, $m
  6,863
  2,469
  2,526
  2,591
  2,664
  2,745
  2,833
  2,930
  3,034
  3,147
  3,268
  3,397
  3,535
  3,681
  3,837
  4,003
  4,178
  4,364
  4,560
  4,768
  4,987
  5,218
  5,462
  5,719
  5,990
  6,275
  6,575
  6,891
  7,223
  7,573
  7,941
Total debt, $m
  3,018
  3,017
  3,164
  3,331
  3,520
  3,728
  3,957
  4,206
  4,476
  4,766
  5,078
  5,412
  5,768
  6,147
  6,550
  6,977
  7,430
  7,910
  8,417
  8,953
  9,519
  10,116
  10,745
  11,409
  12,108
  12,844
  13,620
  14,436
  15,294
  16,198
  17,148
Total liabilities, $m
  6,378
  6,377
  6,524
  6,691
  6,880
  7,088
  7,317
  7,566
  7,836
  8,126
  8,438
  8,772
  9,128
  9,507
  9,910
  10,337
  10,790
  11,270
  11,777
  12,313
  12,879
  13,476
  14,105
  14,769
  15,468
  16,204
  16,980
  17,796
  18,654
  19,558
  20,508
Total equity, $m
  12,656
  8,385
  8,577
  8,798
  9,045
  9,320
  9,620
  9,948
  10,303
  10,685
  11,095
  11,534
  12,002
  12,500
  13,030
  13,592
  14,187
  14,818
  15,485
  16,189
  16,933
  17,718
  18,546
  19,418
  20,337
  21,306
  22,325
  23,398
  24,527
  25,715
  26,964
Total liabilities and equity, $m
  19,034
  14,762
  15,101
  15,489
  15,925
  16,408
  16,937
  17,514
  18,139
  18,811
  19,533
  20,306
  21,130
  22,007
  22,940
  23,929
  24,977
  26,088
  27,262
  28,502
  29,812
  31,194
  32,651
  34,187
  35,805
  37,510
  39,305
  41,194
  43,181
  45,273
  47,472
Debt-to-equity ratio
  0.238
  0.360
  0.370
  0.380
  0.390
  0.400
  0.410
  0.420
  0.430
  0.450
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.530
  0.540
  0.550
  0.560
  0.570
  0.580
  0.590
  0.600
  0.600
  0.610
  0.620
  0.620
  0.630
  0.640
Adjusted equity ratio
  0.559
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2,738
  -2,101
  -2,146
  -2,194
  -2,246
  -2,301
  -2,360
  -2,422
  -2,488
  -2,557
  -2,630
  -2,299
  -2,380
  -2,464
  -2,553
  -2,646
  -2,743
  -2,845
  -2,952
  -3,063
  -3,180
  -3,302
  -3,429
  -3,562
  -3,701
  -3,846
  -3,997
  -4,155
  -4,321
  -4,493
  -4,673
Depreciation, amort., depletion, $m
  1,166
  1,052
  1,067
  1,084
  1,103
  1,124
  1,147
  1,172
  1,200
  1,229
  1,260
  886
  922
  960
  1,001
  1,044
  1,090
  1,138
  1,189
  1,243
  1,300
  1,361
  1,424
  1,491
  1,562
  1,636
  1,715
  1,797
  1,884
  1,975
  2,071
Funds from operations, $m
  5,343
  -1,049
  -1,079
  -1,110
  -1,143
  -1,177
  -1,213
  -1,250
  -1,288
  -1,328
  -1,370
  -1,413
  -1,458
  -1,504
  -1,552
  -1,602
  -1,654
  -1,707
  -1,763
  -1,820
  -1,880
  -1,941
  -2,005
  -2,071
  -2,139
  -2,210
  -2,283
  -2,359
  -2,437
  -2,518
  -2,602
Change in working capital, $m
  1,114
  48
  57
  65
  73
  81
  89
  96
  104
  113
  121
  129
  138
  147
  156
  166
  175
  186
  196
  207
  219
  231
  244
  257
  271
  285
  300
  316
  333
  350
  368
Cash from operations, $m
  4,229
  -2,441
  -1,136
  -1,175
  -1,216
  -1,258
  -1,301
  -1,346
  -1,393
  -1,441
  -1,491
  -1,542
  -1,596
  -1,651
  -1,708
  -1,768
  -1,829
  -1,893
  -1,959
  -2,028
  -2,099
  -2,172
  -2,249
  -2,328
  -2,410
  -2,495
  -2,583
  -2,675
  -2,769
  -2,868
  -2,970
Maintenance CAPEX, $m
  0
  -631
  -644
  -659
  -676
  -695
  -716
  -739
  -764
  -791
  -821
  -852
  -886
  -922
  -960
  -1,001
  -1,044
  -1,090
  -1,138
  -1,189
  -1,243
  -1,300
  -1,361
  -1,424
  -1,491
  -1,562
  -1,636
  -1,715
  -1,797
  -1,884
  -1,975
New CAPEX, $m
  -332
  -120
  -139
  -159
  -179
  -198
  -217
  -237
  -256
  -276
  -296
  -317
  -338
  -360
  -382
  -406
  -430
  -455
  -481
  -509
  -537
  -567
  -598
  -630
  -664
  -699
  -736
  -775
  -815
  -858
  -902
Cash from investing activities, $m
  203
  -751
  -783
  -818
  -855
  -893
  -933
  -976
  -1,020
  -1,067
  -1,117
  -1,169
  -1,224
  -1,282
  -1,342
  -1,407
  -1,474
  -1,545
  -1,619
  -1,698
  -1,780
  -1,867
  -1,959
  -2,054
  -2,155
  -2,261
  -2,372
  -2,490
  -2,612
  -2,742
  -2,877
Free cash flow, $m
  4,432
  -3,192
  -1,919
  -1,993
  -2,070
  -2,150
  -2,234
  -2,321
  -2,413
  -2,508
  -2,607
  -2,711
  -2,819
  -2,933
  -3,051
  -3,174
  -3,303
  -3,438
  -3,578
  -3,725
  -3,879
  -4,039
  -4,207
  -4,382
  -4,565
  -4,756
  -4,955
  -5,164
  -5,381
  -5,609
  -5,847
Issuance/(repayment) of debt, $m
  -1,195
  131
  147
  168
  188
  209
  229
  249
  270
  291
  312
  334
  356
  379
  403
  427
  453
  480
  507
  536
  566
  597
  630
  664
  699
  736
  775
  816
  859
  903
  950
Issuance/(repurchase) of shares, $m
  -672
  0
  1,965
  2,046
  2,129
  2,216
  2,306
  2,400
  2,498
  2,599
  2,705
  2,816
  2,931
  3,052
  3,178
  3,309
  3,446
  3,589
  3,738
  3,894
  4,057
  4,227
  4,405
  4,591
  4,785
  4,987
  5,199
  5,421
  5,652
  5,894
  6,146
Cash from financing (excl. dividends), $m  
  -1,892
  131
  2,112
  2,214
  2,317
  2,425
  2,535
  2,649
  2,768
  2,890
  3,017
  3,150
  3,287
  3,431
  3,581
  3,736
  3,899
  4,069
  4,245
  4,430
  4,623
  4,824
  5,035
  5,255
  5,484
  5,723
  5,974
  6,237
  6,511
  6,797
  7,096
Total cash flow (excl. dividends), $m
  2,541
  -3,061
  -1,772
  -1,825
  -1,882
  -1,942
  -2,005
  -2,072
  -2,143
  -2,217
  -2,295
  -2,377
  -2,463
  -2,553
  -2,648
  -2,747
  -2,850
  -2,958
  -3,071
  -3,190
  -3,313
  -3,442
  -3,577
  -3,718
  -3,865
  -4,019
  -4,180
  -4,348
  -4,523
  -4,706
  -4,897
Retained Cash Flow (-), $m
  3,642
  -169
  -193
  -220
  -247
  -274
  -301
  -328
  -355
  -382
  -410
  -439
  -468
  -498
  -530
  -562
  -596
  -631
  -667
  -705
  -744
  -785
  -828
  -872
  -919
  -968
  -1,019
  -1,073
  -1,129
  -1,188
  -1,249
Prev. year cash balance distribution, $m
 
  4,440
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  1,210
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  1,160
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  89.6
  80.2
  71.6
  63.8
  56.9
  50.6
  45.0
  40.0
  35.6
  31.6
  28.1
  25.0
  22.2
  19.7
  17.5
  15.6
  13.8
  12.3
  10.9
  9.7
  8.7
  7.7
  6.9
  6.1
  5.5
  4.9
  4.4
  3.9
  3.5

Baker Hughes Incorporated supplies oilfield services, products, technology, and systems to the oil and natural gas industry worldwide. The company offers drilling and evaluation products and services, which include drill bits for performance drilling, hole enlargement, and coring; open hole (imaging, fluids sampling, etc.) and cased hole (production logging, wellbore integrity, pipe recovery, etc.) well logging services; and emulsion and water-based drilling fluids systems, reservoir drill-in fluids, and completion fluids, as well as fluids environmental services. Its drilling and evaluation products and services also comprise directional drilling systems and services, such as rotary steerables, drilling motors, measurement-while-drilling systems, etc.; logging-while-drilling systems and services, including resistivity, imaging, pressure testing and sampling, etc.; surface logging and coring systems and services; and geoscience services. In addition, the company offers completion and production products and services consisting of completion systems used to control the flow of hydrocarbons within a wellbore; wellbore intervention products and services to enhance the performance of existing wellbores; intelligent production system products and services to monitor, analyze, and control production to optimize returns and ultimate recovery; artificial lifts, such as in-well electric submersible pump systems, progressing cavity pump systems, and gas lift systems, as well as horizontal surface pumping systems that move fluids on the surface for applications, such as injection, disposal, transfer, and pipeline boosting; chemical technologies and services; and onshore and offshore cementing, stimulation, and coil tubing services. Further, it offers industrial services, including downstream chemicals, and process and pipeline services. The company was founded in 1972 and is headquartered in Houston, Texas. Baker Hughes Incorporated is a subsidiary of General Electric Company.

FINANCIAL RATIOS  of  Baker Hughes (BHI)

Valuation Ratios
P/E Ratio -9.2
Price to Sales 2.6
Price to Book 2
Price to Tangible Book
Price to Cash Flow 6
Price to Free Cash Flow 6.5
Growth Rates
Sales Growth Rate -37.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -65.6%
Cap. Spend. - 3 Yr. Gr. Rate -30.8%
Financial Strength
Quick Ratio 35
Current Ratio 0.2
LT Debt to Equity 22.8%
Total Debt to Equity 23.8%
Interest Coverage -8
Management Effectiveness
Return On Assets -11.4%
Ret/ On Assets - 3 Yr. Avg. -3.8%
Return On Total Capital -15.2%
Ret/ On T. Cap. - 3 Yr. Avg. -5.6%
Return On Equity -18.9%
Return On Equity - 3 Yr. Avg. -6.9%
Asset Turnover 0.5
Profitability Ratios
Gross Margin -1.3%
Gross Margin - 3 Yr. Avg. 8.7%
EBITDA Margin -6.7%
EBITDA Margin - 3 Yr. Avg. 2.8%
Operating Margin -18.9%
Oper. Margin - 3 Yr. Avg. -7.5%
Pre-Tax Margin -20.7%
Pre-Tax Margin - 3 Yr. Avg. -8.9%
Net Profit Margin -27.8%
Net Profit Margin - 3 Yr. Avg. -11.1%
Effective Tax Rate -34.1%
Eff/ Tax Rate - 3 Yr. Avg. 8.1%
Payout Ratio -10.7%

BHI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BHI stock intrinsic value calculation we used $9841 million for the last fiscal year's total revenue generated by Baker Hughes. The default revenue input number comes from 2016 income statement of Baker Hughes. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our BHI stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for BHI is calculated based on our internal credit rating of Baker Hughes, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Baker Hughes.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of BHI stock the variable cost ratio is equal to 109.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $995 million in the base year in the intrinsic value calculation for BHI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6.1% for Baker Hughes.

Corporate tax rate of 27% is the nominal tax rate for Baker Hughes. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the BHI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for BHI are equal to 60.3%.

Life of production assets of 9.4 years is the average useful life of capital assets used in Baker Hughes operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for BHI is equal to 24.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $12656 million for Baker Hughes - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 428.954 million for Baker Hughes is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Baker Hughes at the current share price and the inputted number of shares is $25.6 billion.


Premium access subscription - $499/yr

please register and log in before paying
RELATED COMPANIES Price Int.Val. Rating
HAL Halliburton 46.40 2.01  str.sell
NOV National Oilwe 34.98 5.20  str.sell
NR Newpark Resour 7.90 1.40  str.sell
SLB Schlumberger 72.84 8.49  str.sell
FTK Flotek Industr 11.96 0.97  str.sell
TESO Tesco 6.75 1.64  str.sell
SPN Superior Energ 12.26 0.79  str.sell

COMPANY NEWS

▶ Why Baker Hughes Missed 1Q17 Earnings Estimates   [Apr-27-17 05:22PM  Market Realist]
▶ Baker Hughes Declares Quarterly Dividend   [12:02PM  Business Wire]
▶ Baker Hughes reports smaller revenue, smaller loss in Q1   [Apr-25-17 03:25PM  American City Business Journals]
▶ Oil snaps 6-session losing streak   [03:19PM  MarketWatch]
▶ Baker Hughes reports 1Q loss   [06:40AM  Associated Press]
▶ Baker Hughes Announces First Quarter Results   [06:30AM  Business Wire]
▶ Baker Hughes Expects N. America Revenue To Rise In 2Q   [Apr-24-17 08:00PM  Rigzone.com]
▶ Eagle Ford rig count continues to inch up despite oil price drop   [Apr-21-17 05:15PM  American City Business Journals]
▶ Baker Hughes' Weekly Rig Count Climbs By 10   [01:16PM  TheStreet.com]
▶ General Electric, Honeywell Earnings Preview: Is There a Trump Boost?   [Apr-20-17 05:10PM  Investor's Business Daily]
▶ Why U.S. oil production isnt done rising   [Apr-17-17 10:02PM  MarketWatch]
▶ [$$] U.S. Oil-Rig Count Climbs by 11   [02:05PM  The Wall Street Journal]
▶ U.S. Drillers Add 8 Rigs, Baker Hughes Says   [01:20PM  TheStreet.com]
▶ Short Interest in Baker Hughes on April 10   [07:36AM  Market Realist]
▶ The 7-Day Stock Price Forecast for BHI on April 10   [Apr-12-17 10:37AM  Market Realist]
▶ Reading Baker Hughess 1-Year Stock Price on April 7   [Apr-11-17 05:35PM  Market Realist]
▶ Baker Hughess Management on Its 2017 Outlook   [04:05PM  Market Realist]
▶ US rig count increases 15 this week to 839; Texas up 7   [Apr-07-17 07:29PM  Associated Press]
▶ Is a Baker Hughes Breakout Ahead?   [03:10PM  TheStreet.com]
▶ Baker Hughes Announces March 2017 Rig Counts   [06:00AM  Business Wire]
▶ Why the Permian M&A Boom May Not End Well   [Apr-04-17 08:18AM  TheStreet.com]
▶ [$$] 8 Energy Picks That Can Rise Even With Cheap Oil   [Apr-01-17 12:30AM  Barrons.com]
▶ Oil prices end higher, but lose nearly 6% for the quarter   [Mar-31-17 03:20PM  at MarketWatch]
▶ Baker Hughes CEO reportedly to receive millions from GE deal   [12:45PM  American City Business Journals]
▶ Halliburton Company: Buy the Dip?   [Mar-24-17 05:29PM  at Motley Fool]
▶ Should You Invest Your Tax Refund In Oil?   [Mar-23-17 05:40AM  at Forbes]
Stock chart of BHI Financial statements of BHI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.