This Oil and Gas Stock is a New Top Pick at Morgan Stanley

Morgan Stanley has identified Baker Hughes as its leading choice in the oilfield services and equipment sector, increasing its price target for the stock by 7% to $45 in a report released on Thursday.

The firm highlighted several important factors that differentiate Baker Hughes, such as its strong involvement in the liquefied natural gas (LNG) market and a well-rounded portfolio that combines both growth potential and stability.

According to the bank, Baker Hughes is appealing because its portfolio is viewed as more defensive and stable compared to its peers in the sector while still offering attractive growth opportunities along with durable earnings and free cash flow.

Morgan Stanley noted that Baker Hughes is set to gain significantly from the rising global demand for gas, especially through its upstream operations. The company’s exposure to international capital expenditures, which are expected to grow further, adds an extra layer of stability to its earnings.

Analysts from Morgan Stanley also pointed to Baker Hughes’ strong prospects in new energy and digital sectors as additional avenues for growth. They believe the company is well-positioned to capitalize on a historically robust LNG build cycle, noting Baker Hughes’ substantial market presence, with a significant share in global LNG projects, including almost all projects currently under construction.

The firm’s Global Gas & LNG strategist projects that global LNG supply will increase by 50% by 2030, with Baker Hughes well-prepared to leverage this expansion.

Morgan Stanley emphasized that Baker Hughes’ portfolio is more defensive compared to its competitors, providing durability in earnings and free cash flow alongside long-term growth prospects.

This blend of attributes positions Baker Hughes as an appealing option for investors looking for both stability and growth in the energy sector. Additionally, with LNG service contracts typically lasting 12 to 15 years and yielding higher margins than original equipment sales, the company is expected to achieve sustained profitability from these long-term agreements.