Investing.com -- Morgan Stanley named Baker Hughes as its top pick in the oilfield services and equipment (OFSE) sector, raising its price target for the stock by 7% to $45 in a note Thursday.
The firm cited several key factors that make BKR a standout, including its strong exposure to the liquefied natural gas (LNG) market and a diversified portfolio that offers both growth potential and stability.
“BKR as our Top Pick as its portfolio is relatively more defensive and stable vs. its OFSE peer group, but still includes attractive growth prospects, as well as earnings/FCF durability and longevity,” wrote the bank.
According to Morgan Stanley, Baker Hughes benefits significantly from the current and future growth in global gas demand, particularly through its upstream operations.
The company’s exposure to international capital expenditures, where further growth is anticipated, adds another layer of stability to its earnings, according to the bank.
Morgan Stanley analysts also highlighted BKR’s robust prospects in new energy and digital businesses as additional growth drivers.
They believe Baker Hughes is positioned to take advantage of a historically strong LNG build cycle. They note the company holds a dominant market position, with over 90% content on global LNG projects, including nearly all of the projects currently under construction.
Morgan Stanley's Global Gas & LNG strategist anticipates a 50% increase in global LNG supply by 2030, with BKR well-positioned to benefit from this expansion.
Morgan Stanley added that BKR's portfolio is more defensive compared to its peers, offering earnings and free cash flow durability alongside long-term growth opportunities.
The combination of these factors is said to make Baker Hughes a top pick for investors seeking stability and growth in the energy sector.
With LNG service contracts typically lasting 12-15 years and offering higher margins than original equipment sales, BKR is expected to enjoy sustained profitability from these long-duration agreements.