Baker Hughes CompanyBKRNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $100.83 per share(market-calibrated)

+58.4%

Upside to Fair Value

Current

$63.67

Pure Model

$103.52

Fair Value

$100.83

Bull Case

$120.06

Bear Case

$89.30

Market Reality Check

Model Terminal Growth

2.00%

Market-Implied Growth

0.50%

Calibrated Growth

1.48%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $103.52.

What's Driving This Ratingfor BKR

✓

CapEx already efficient

CapEx at 3.67% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 22.96% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 0.55% revenue growth, fading to 2.00% by Year 10. Revenue reaches $34.9B (vs $27.7B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 150bps below the model's 2.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 78.37% indicates efficient cash generation. FCF reaches $7.4B by Year 10 (21.14% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.86

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.37%

Cost of Debt

Pre-tax Cost of Debt3.32%

Tax Rate8.79%

After-tax Cost of Debt3.03%

Equity Weight (E/V)89.80%

Debt Weight (D/V)10.20%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (89.80% × 8.37%) + (10.20% × 3.03%)

= 7.82%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$27.9B	$30.4B	$30.6B	$32.5B	$34.9B
EBIT	$6.4B	$7.0B	$7.0B	$7.5B	$8.0B
Tax	$563M	$614M	$618M	$657M	$704M
NOPAT	$5.8B	$6.4B	$6.4B	$6.8B	$7.3B
+ Depreciation	$1.1B	$1.2B	$1.2B	$1.3B	$1.4B
- Capex	$1.0B	$1.1B	$1.1B	$1.2B	$1.3B
- Δ NWC	$11M	$59M	$80M	$70M	$52M
Free Cash Flow	$5.9B	$6.4B	$6.4B	$6.9B	$7.4B
Discount Factor	0.927	0.798	0.686	0.590	0.471
Present Value	$5.5B	$5.1B	$4.4B	$4.0B	$3.5B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$7.4B

Terminal Growth Rate2.00%

WACC7.82%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$129.1B

PV of Terminal Value$60.8B

Exit Multiple Method

Year 10 EBITDA$9.4B

Exit Multiple (EV/EBITDA)14.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$131.6B

PV of Terminal Value$62.0B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$44.3B

PV of Terminal Value$60.8B

Enterprise Value$105.1B

(-) Net Debt$3.4B

Equity Value$101.7B

Shares Outstanding988M

Price per Share$102.92

Exit Multiple Method

PV of Projected FCFs$44.3B

PV of Terminal Value$62.0B

Enterprise Value$106.3B

(-) Net Debt$3.4B

Equity Value$102.9B

Shares Outstanding988M

Price per Share$104.13

Pure Model Fair Value

$103.52

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.00%	1.50%	2.00%	2.50%	3.00%
5.82%	$128.11	$133.49	$140.27	$149.10	$161.06
6.82%	$111.45	$114.77	$118.78	$123.72	$129.96
7.82%	$98.76	$100.95	$103.52	$106.58	$110.27
8.82%	$88.63	$90.15	$91.90	$93.92	$96.28
9.82%	$80.28	$81.38	$82.61	$84.01	$85.62

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$89.30

40.3% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.07

Base Case

$103.52

62.6% vs current

• Analyst consensus
• Terminal growth: 2.0%
• Beta: 0.86

Bull Case

$120.06

88.6% vs current

• +25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.73

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Energy Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth0.55%

Year 3 Revenue Growth2.65%

Year 5 Revenue Growth3.57%

Year 7 Revenue Growth2.94%

Year 10 Revenue Growth2.00%

Terminal Growth Rate2.00%

Margin & Efficiency

Current EBIT Margin22.96%

Tax Rate8.79%

Historical Capex / Rev3.67%

NWC / Revenue7.56%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 14x EV/EBITDA (Energy sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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