We issued an updated research report on Oil drilling equipment maker FMC Technologies Inc. FTI on Nov 30, 2016.
FMC Technologies has a diversified product portfolio, specialty service capabilities and proprietary technological expertise. The company’s dominance in the market, technology leadership and efficient execution skills are its key strengths. However, the unprecedented oil slide has rocked equipment suppliers like FMC Technologies, which grapple with fewer future orders from explorers that are looking to cut capital expenditure.
As a result, FMC Technologies currently has a Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.
FMC Technologies is particularly well positioned in the subsea systems market. It is the company’s largest and fastest-growing business and accounts for about two-thirds of the revenues. In spite of pricing pressure and reduced activity, FMC Technologies has been able to maintain attractive operating margins, courtesy of relentless cost reductions and excellent project execution. This supported the company’s recent earnings beat – the first in four quarters.
The company’s strong backlog – now $3 billion – reflects not only steady demand from customers but also long-term earnings and cash flow visibility. This enables the company to navigate uncertainty better than many of its peers.
Additionally, following the Gulf of Mexico oil spill, the company continues to benefit from the requirements for better offshore safety equipments. Stricter regulations on drilling have translated into enhanced opportunities for subsea equipment suppliers like FMC Technologies.
FMC TECH INC Price
Despite crude’s massive recovery since February, the commodity is still trading under $50 – about half the level of two years ago and far below the breakeven price for many oil and gas firms. As a result, the top energy companies continue to cut spending (particularly on the costly upstream projects) on the back of lower profit margins. This, in turn, means less work for equipment suppliers like FMC Technologies.
Also, Oilfield service stocks are extremely volatile and the correlation of their movement with underlying business fundamentals is sometimes difficult to establish.
Stocks to Consider
Some better-ranked players in the broader energy sector include Braskem S.A. BAK, Ultra Petroleum Corp. UPLMQ and McDermott International Inc. MDR. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the last four quarters, Braskem posted an average positive earnings surprise of 105.5%.
Ultra Petroleum, on the other hand, posted an average positive earnings surprise of 65.91% in the last four quarters.
In the last four quarters, McDermott posted an average positive earnings surprise of 250.00%.
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