Morgan Stanley Names Baker Hughes as Top Pick in OFSE Sector

Investing.com — Morgan Stanley has designated Baker Hughes as its top choice in the oilfield services and equipment (OFSE) sector, increasing its price target by 7% to $45 in a note released on Thursday.

The firm highlighted several key factors that distinguish BKR, including its strong presence in the liquefied natural gas (LNG) market and a diversified portfolio that combines growth potential with stability.

“BKR is our Top Pick because its portfolio is relatively more defensive and stable compared to its OFSE peers, offering appealing growth prospects alongside earnings and free cash flow durability,” wrote the bank.

Morgan Stanley pointed out that Baker Hughes significantly benefits from both current and anticipated increases in global gas demand, particularly through its upstream operations.

Additionally, the company’s exposure to international capital expenditures, where further growth is expected, enhances the stability of its earnings.

Morgan Stanley analysts also underscored BKR’s strong prospects in new energy and digital sectors as further drivers of growth.

They believe Baker Hughes is positioned to capitalize on a historically robust LNG build cycle, noting that the company commands a dominant market position with over 90% content in global LNG projects, including nearly all projects currently under construction.

Morgan Stanley’s Global Gas & LNG strategist forecasts a 50% surge in global LNG supply by 2030, with BKR poised to benefit from this growth.

Moreover, Morgan Stanley indicated that BKR’s portfolio is more defensive than that of its peers, providing a blend of earnings stability and long-term growth opportunities.

These factors collectively make Baker Hughes a prime choice for investors seeking both stability and growth within the energy sector. The company’s LNG service contracts, typically lasting 12-15 years and providing higher margins than original equipment sales, are expected to result in sustained profitability from these long-duration agreements.