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What Baker Hughes’s Historical Valuation Means Today

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Baker Hughes’s PE trend

Baker Hughes’s (BHI) PE (price-to-earnings) multiple fluctuated between 2009 and 2014. On December 31, 2015, BHI’s share price was 18% lower than one year previously. In 2015, BHI’s adjusted earnings turned negative, and BHI’s PE multiple thus was not meaningful that year.

In 1Q16, BHI’s share price declined by 5% over 4Q15, but its adjusted earnings remained negative, which means that the multiple was not meaningful that quarter.

Forward PE considers the sell-side analyst consensus estimate for earnings during the next four quarters. But Baker Hughes’s forward PE is not available, which reflects an expectation of losses.

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Baker Hughes’ price-to-cash-flow multiple

Baker Hughes’s price-to-cash-flow increased in 2015 as compared to 2009. However, from 2014 to 2015, BHI’s CFO decreased more sharply as compared to BHI’s share price. So, the price-to-cash-flow multiple inflated in 2015 over 2014. Going forward, analysts expect the company’s price-to-cash-flow to rise, which reflects expectations of lower cash flow during the next four quarters.

Baker Hughes’s EV-to-EBITDA trend

Baker Hughes’s historical valuation, which is expressed in an EV-to-EBITDA (enterprise multiple to earnings before interest, tax, depreciation & amortization) multiple, decreased from 2009 to 2014. From 2014 to 2015, Baker Hughes’s net debt decreased. BHI’s share price decreased more sharply during this period. In effect, the company’s EV, which is approximately the summation of its equity value and net debt, decreased in 2015.

Meanwhile, BHI’s TTM EBITDA turned negative in 2015, as compared to one year previously, which means that its EV-to-EBITDA ratio was not meaningful in 2015. In 1Q16, BHI’s TTM EBITDA remained negative, meaning that the EV-to-EBITDA multiple was not meaningful in 1Q16 either.

By comparison, Oceaneering International’s (OII) EV-to-EBITDA stood at 6.6x by the end of 1Q16.

Forward EV-to-EBITDA

Forward EV-to-EBITDA considers the sell-side analyst consensus estimate of EBITDA for the coming fiscal year. Baker Hughes’s forward EV-to-EBITDA multiple for 2016 is positive, reflecting expectations of positive EBITDA in 2016. Notably, Baker Hughes makes up 1.3% of the iShares North American Natural Resources ETF (IGE).

Now let’s discuss Baker Hughes’s valuation compared to industry peers.

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