Baker Hughes

Margins and growth (percentages)

Revenue CAGR FY2021–FY2025: 7.8%. Adjusted EBITDA CAGR FY2021–FY2025: 15.8%. Adjusted diluted EPS CAGR FY2023–FY2025: 27.5%.

Cash flow: notes and sources

Gross capex and disposal proceeds were not separately disclosed for FY2021–FY2022 in the sources reviewed; the net figure is shown. FY2024 acquisitions were nil. FY2025 shows no disposition proceeds because the SPC and PSI closings fell in January 2026.

Returns and credit ratios

Method note. ROE and ROA use year-end equity and assets for consistency across all five years (FY2020 comparatives are outside the presented window). Estimated ROIC applies a 21% U.S. statutory rate to adjusted operating income and divides by year-end total debt plus total equity; this is a derived analytical measure, not a company-reported figure, and is deliberately computed on adjusted operating income because GAAP effective tax rates in FY2021, FY2022, FY2024 and FY2025 are distorted by valuation allowance movements and non-deductible restructuring. Cash conversion cycle is not calculated: Baker Hughes does not disclose the components (cost of goods sold split, days sales outstanding, days payable) with sufficient granularity in the sources reviewed, and computing it from reported balances alone would mislead given the size of progress collections and contract assets in a percentage-of-completion business.

Commentary on trends, inflections and drivers

Revenue. The five-year arc has three phases. FY2021–FY2022 was a shallow recovery from the pandemic trough, with total revenue growing only 3.2% in FY2022 as a 10% OFSE rebound was offset by a 6% IET decline (equipment revenue conversion lagged the order cycle). FY2023 was the inflection: 20.6% growth as IET's 2021–2022 LNG order book began converting, IET revenue rising 28% to $10.1 billion, alongside a 16% OFSE gain. FY2024 added a further 9.1%. FY2025 was flat in aggregate (−0.3%) but violently mixed underneath: IET +9.9% against OFSE −8.3%.

Profitability. The margin story is the most credible part of the equity case. Adjusted EBITDA margin expanded from 13.1% in FY2021 to 17.4% in FY2025 — 430 basis points in four years, on a revenue base that grew 35%. Management's own long-run framing at the Barclays conference is over 600 basis points of Baker Hughes adjusted EBITDA margin improvement since 2017, and over 600 basis points of OFSE EBITDA margin improvement over the same period. The drivers management cites consistently are the Baker Hughes Business System (structured KPI deployment, daily management, value-stream transformation), price, cost-out initiatives and productivity, offset by inflation and mix. Independent corroboration is visible in the fact that FY2025 OFSE held an 18.3% EBITDA margin on an 8% revenue decline — a decremental margin performance that implies genuine structural cost removal, not just volume leverage.

Restructuring cadence. Restructuring charges have run every single year: $209 million (FY2021), $705 million (FY2022, inflated by the Russia exit), $313 million (FY2023), $260 million (FY2024, "primarily related to streamlining of the OFSE operating model"), $215 million (FY2025, "primarily related to employee termination expenses and footprint consolidation"). Cumulatively $1.7 billion over five years. This is a company that has permanently normalised restructuring as an operating cost, which flatters "adjusted" measures. An analyst should treat roughly $200–300 million per year of restructuring as recurring.

Tax. The effective tax rate is not a useful signal in this period. FY2021 and FY2022 show tax expense exceeding or nearly exceeding pre-tax income because of valuation allowances against losses with no benefit. FY2024 and FY2025 show 7.9% and 8.8% because of $664 million and $308 million of valuation allowance releases respectively, as the U.S. and (in 2025) the U.K. moved into cumulative three-year profit positions. Cash taxes paid tell the truer story: $1,040 million in FY2024 and $1,156 million in FY2025, against book tax provisions of $257 million and $253 million. Management's FY2026 guidance of a 22–26% adjusted effective tax rate is the right forward number.

Net income and EPS. GAAP net income attributable fell 13.1% in FY2025 to $2,588 million despite adjusted EBITDA rising 5.1%. The gap is explained almost entirely by below-the-line items: a $103 million net loss on equity securities in FY2025 versus a $367 million net gain in FY2024, plus $107 million of transaction costs. Adjusted diluted EPS rose 10.6% to $2.60. In FY2025 GAAP and adjusted diluted EPS converged at exactly $2.60 — total adjustments net of tax were only $5 million — which is the first clean year in the series and is worth noting as a quality-of-earnings improvement, albeit one produced by two large offsetting items rather than by the absence of adjustments.

Balance sheet and cash. Net debt fell every year from FY2022's $4,169 million to FY2025's $2,372 million, taking net debt/adjusted EBITDA from 1.40x to 0.49x. Working capital discipline is the FY2025 headline: working capital provided $713 million of operating cash inflow versus $7 million in FY2024, and management explicitly attributed the record $2,732 million of free cash flow to "working capital efficiency and customer down payments." The latter is a caution flag — progress collections and deferred income rose to $5,904 million at FY2025 year-end from $3,232 million at FY2021. Customer down payments on a growing equipment backlog are a genuine source of cash, but they are a financing of future revenue, not a permanent improvement in cash generation, and they reverse when the order cycle turns.

Capital intensity. Capex has been remarkably stable at $1.0–1.1 billion net for three years, roughly 3.9% of revenue in FY2025. The company has been able to grow adjusted EBITDA 28% over FY2023–FY2025 with no incremental capital intensity, which is the arithmetic behind the free cash flow conversion improvement to 56.6%.

Post-balance-sheet transformation. The Q2 2026 balance sheet is a different company: total assets of $52,620 million (up from $40,881 million at FY2025 year-end), cash of $15,727 million and long-term debt of $15,479 million, both reflecting the March 2026 pre-funding of Chart and the receipt of divestiture proceeds ahead of the 16 July close. Equity stood at $20,084 million. Net debt at 30 June 2026 was $526 million (derived), which management characterised as 0.1x LTM adjusted EBITDA — a figure that is technically accurate but economically meaningless, since the $13.6 billion cash consideration for Chart was paid sixteen days later. The relevant forward leverage anchor is management's own target of 1.0–1.5x net debt/EBITDA within 24 months of closing, i.e. by the second half of 2028.

Management guidance summary

For FY2026, management guides to revenue of $28.5–30.3 billion (midpoint $29.4 billion) and adjusted EBITDA of $4,875–5,475 million (midpoint $5,175 million), including Chart from 16 July 2026. At the midpoint this is 6.0% revenue growth and 7.3% adjusted EBITDA growth versus FY2025, implying an adjusted EBITDA margin of 17.6% — only 20 basis points of expansion, because Chart arrives at approximately 17% margin and dilutes the mix. Excluding Chart, the implied ex-Chart adjusted EBITDA margin is approximately 17.7% (derived from $4,825 million of ex-Chart EBITDA guidance midpoint on $27,350 million of ex-Chart revenue midpoint), which is 30 basis points of expansion on flat-to-modest revenue growth.

Segment guidance at midpoints: OFSE revenue $13,850 million (−3.3% versus FY2025) with EBITDA of $2,425 million (−7.4%) and an implied margin of 17.5% — a 75 basis point contraction, and the first year OFSE margins are guided down. IET revenue of $13,500 million (+0.7%) with EBITDA of $2,725 million (+9.8%) and an implied margin of 20.2% — hitting the 20% target as promised. Chart revenue of $2,050 million (a half-year stub) with EBITDA of $350 million, a 17.1% margin.

Free cash flow conversion is guided at 40–45%, down from 56.6% in FY2025, reflecting acquisition-related interest, transaction and integration costs. At the midpoint this implies approximately $2.2 billion of free cash flow — a 20% decline from FY2025's record.

For Horizon Two (2026–2028): more than $45 billion of IET orders; 20% adjusted EBITDA margin for Baker Hughes ex-Chart by 2028; Chart EBITDA margin of 22–23% by 2H'28; $325 million of Chart cost synergies by year three; net leverage of 1.0–1.5x by 2H'28.

Consensus expectations

Sell-side consensus is Buy, with 24 analysts averaging a $72.13 twelve-month target (approximately 13% upside from $63.34) as of September 2026. Recent target revisions cluster at $71–78.

Bull case

1. The IET margin target is being delivered, not promised. IET segment EBITDA margin reached 20.6% in Q2 2026 and 20.2% in Q1 2026, against a 20% target set for the full year 2026 and a 15.1% starting point in FY2023. This is 550 basis points of delivered expansion in ten quarters. FY2026 IET guidance at a 20.2% implied midpoint margin is therefore not a stretch; it is a run-rate. Every subsequent Horizon Two target — including the 20% total company margin by 2028 — rests on this having been proven, and it has been.

2. The order book has structurally re-rated, and it is not LNG-dependent. Q2 2026 IET orders of $7,088 million doubled year-over-year and were 45% above the prior record set only one quarter earlier. IET RPO reached $37.1 billion, up 19% in a quarter. Critically, for two consecutive years non-LNG equipment orders were approximately 85% of total IET orders — the growth is in power generation, gas infrastructure, industrial compression and climate technology, not in a single lumpy LNG cycle. Management raised the Horizon 2 order target by more than $5 billion and made a capacity expansion decision on the back of it. At a 20% margin, $45 billion of orders over three years converts to roughly $9 billion of cumulative segment EBITDA from IET alone against a current enterprise value of approximately $65 billion.

3. The portfolio is now structurally less cyclical, and the cash flow proves it. Free cash flow rose from $1,116 million (FY2022) to $2,732 million (FY2025) — a 145% increase — while revenue rose 31%. Net debt fell from $4,169 million to $2,372 million. In FY2025, IET's 10% growth fully offset OFSE's 8% decline at the revenue line and more than offset it at the EBITDA line ($432 million of IET EBITDA growth against $263 million of OFSE decline). Adding Chart's aftermarket-heavy, industrially-diversified revenue further reduces the correlation to rig count. This is the mechanism behind the 137.7% five-year total return versus 62.9% for SLB and 52.6% for Halliburton — and it should persist.

Bear case

1. You are paying a 38% P/E premium for a business whose largest segment is shrinking and whose margins are guided down for the first time. Baker Hughes trades at approximately 20.4x forward earnings against 14.9x for SLB and 14.7x for Halliburton. OFSE revenue fell 8.3% in FY2025 and is guided down a further 3.3% in FY2026, with segment EBITDA guided down 7.4% and margin down approximately 75 basis points to 17.5% — the first guided margin contraction in OFSE since the transformation began, and a direct contradiction of the Horizon Two objective to "close the OFSE margin gap with peers." Half the company is deteriorating while the multiple assumes the whole company is an industrial compounder.

2. Chart arrives underperforming, over-levered and under-managed, and the margin bridge is heroic. Chart's 2H'26 EBITDA margin is guided at approximately 17% against a 22–23% target for 2H'28 — a required 500–600 basis point improvement in two years, delivered simultaneously with a Business System deployment that is only in Phase 1, in a business Baker Hughes has never operated. Management has already disclosed a backlog restatement to approximately $3.6 billion "after alignment to Baker Hughes accounting policies," soft hydrogen demand, LNG project timing headwinds, and "first-of-a-kind projects that carry lower margins." The company took on $9.9 billion of new notes plus a $2.0 billion term loan to buy it, took long-term debt from $5.4 billion to $15.5 billion, cut free cash flow conversion guidance from 56.6% actual to 40–45%, suspended buybacks for three consecutive quarters, and returned only 47% of FY2025 free cash flow against a 60–80% policy. And the executive who ran the segment Chart most resembles resigned in October 2025 and has not been permanently replaced.

3. The geopolitical concentration is unhedged and worsening. Middle East/Asia is the largest OFSE region — $5,814 million in FY2024, approximately 37% of segment revenue. Q2 2026 revenue in the region fell 13% year-over-year, and management's language has escalated from "the recent conflict in the Middle East" to a specific naming of the Strait of Hormuz in the FY2026 risk factors. Guidance is explicitly conditioned on "Middle East activity remains broadly consistent through year-end." Compounding this, management's own cited demand outlook shows 0% oil demand CAGR to 2030, tariffs were quantified at $100–200 million of EBITDA risk, and the U.S. rig count has been pinned at 588–593 since August. There is no scenario in the guidance for a Middle East deterioration, and OFSE has no backlog cushion — $3.0 billion of RPO against $13.9 billion of guided revenue is under three months of cover.

Catalysts and monitorables — next 12 months

Analyst verdict

Baker Hughes has executed one of the more credible industrial transformations of the last five years, and the market has paid for it — a 137.7% five-year total return against 62.9% for SLB and 52.6% for Halliburton, and a 38% forward P/E premium to both. The evidence supporting that premium is real and specific: 430 basis points of adjusted EBITDA margin expansion since FY2021, IET margins that hit 20.6% in Q2 2026 against a 15.1% base in FY2023, $37.1 billion of IET backlog with services exceeding equipment, and free cash flow up 145% since FY2022. Non-LNG orders at approximately 85% of the IET total demonstrate this is a diversified industrial franchise, not a levered bet on a single liquefaction cycle.

The problem is that the premium now embeds the completion of a transformation that is only half done. OFSE — still 50% of revenue — is guided to a margin contraction in FY2026, the first since the programme began, against a stated objective of closing the peer margin gap. Chart arrives at 17% margins with a restated backlog and requires 500–600 basis points of improvement in eight quarters. The company has $15.5 billion of long-term debt, suspended buybacks, cut free cash flow conversion guidance to 40–45%, returned only 47% of FY2025 free cash flow against a 60–80% policy, and has run its largest segment on an interim leader for eleven months.

The correct posture is constructive but not complacent. This is a genuinely better business than it was in 2021, and management has earned the benefit of the doubt on operational delivery. But at 20x forward earnings, the shares are priced for Chart integration to work, IET orders to stay above $18 billion, and the Middle East to hold. Two of those three are outside management's control. Own the transformation; do not underwrite the multiple.

APPENDIX A — DATA GAPS AND ITEMS REQUIRING VERIFICATION

1. Exact date and rationale of the NYSE-to-Nasdaq listing transfer

2. ISIN and CUSIP (standard identifiers cited from general knowledge, not from a filing)

3. FY2023 employee count (approximately 58,000, from the FY2023 Form 10-K)

4. FY2023 year-end total remaining performance obligations

5. FY2025 OFSE revenue split across the four reporting regions (only North America and International are disclosed)

6. FY2025 IET revenue for Industrial Products and Climate Technology Solutions separately

7. FY2025 IET segment R&D expense

8. Summary Compensation Table figures for all NEOs including Simonelli — read directly from page 56 of the 2026 DEF 14A

9. Ages of Borras, Magno, Khider Ahmed and Contreras

10. Legal Proceedings — FY2025 Form 10-K Commitments and Contingencies note and Q1/Q2 2026 Form 10-Q Part II Item 1

11. Current environmental remediation accrual

12. Existing share repurchase authorisation size and remaining capacity

13. Committed revolving credit facility size and terms

14. Full legacy debt maturity ladder pre-2029

15. Current Moody's, S&P and Fitch outlooks and any post-Chart rating actions

16. Sustainalytics and CDP ratings

17. Total patent portfolio size

18. Quantitative diversity metrics

19. Scope 3 emissions disclosure

20. Complete facility register (Item 2, Properties)

21. FY2025 actuals for Weatherford, NOV and TechnipFMC; FY2025 adjusted EBITDA, R&D and net income for SLB

22. Baker Hughes one-year, three-year and ten-year total shareholder returns

23. Nexus Controls divestiture counterparty and consideration

24. Individual targets within FY2021, FY2022 and FY2023 acquisition spend

25. Ganesh Ramaswamy resignation — the underlying Form 8-K

26. Waygate/Hexagon regulatory clearance status

27. Current commercial status of the BakerHughesC3.ai alliance

28. Digital and software revenue disclosure (believed not disclosed)

29. Consensus FY2026 and FY2027 revenue and EPS estimates

30. Q3 2026 results (not yet reported as of 10 September 2026)