Incorporated in 2000, Houston, Texas-based FMC Technologies Inc. (FTI) is a leading manufacturer and supplier of technology solutions for the energy industry. The company, which operates 25 manufacturing facilities in 15 countries, is engaged in designing, producing and servicing technologically sophisticated systems and products such as subsea production and processing systems, surface wellhead production systems, high pressure fluid control equipment, measurement solutions, and marine loading systems for the oil and gas industry. FMC Technologies divides its business into two segments: Energy Production Systems and Energy Processing Systems.
Capitalizing on the Secular Trend
The growth in global energy demand will continue to boost drilling activity, with the employment of technology to find and recover oil/gas resources. As such, opportunities for a global large-cap oilfield services company like FMC Technologies will also improve, as it captures the economic benefit of this trend. Supported by consistency in its earnings/cash flows, attractive fundamentals and a positive outlook, we remain optimistic on the company’s near-term prospects. FMC Technologies currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.
FMC Technologies is particularly well positioned in the subsea systems market, where it competes with Cameron International Corp. (CAM). Subsea activity represents the company’s largest and fastest-growing business, accounting for about 70% of revenue. Subsea products have seen an increase in interest, and we expect earnings in this segment to strengthen – especially due to FMC Technologies’ leadership position in subsea production systems, including subsea trees, controls and manifold and tie-in systems.
Following the Gulf of Mexico oil spill, we expect the company to benefit from the near-term requirements for better offshore safety equipment. Stricter regulations on drilling could translate into enhanced opportunities for subsea equipment suppliers like FMC Technologies.
With a major portion of its total revenue coming from outside the U.S., FMC Technologies’ international operations are expected to be a key growth driver going forward and will play an offsetting role to the relatively soft domestic drilling scene. We have identified Latin America, Asia Pacific and the Middle East as the key markets in this regard.
FMC Technologies’ strong backlog, which now stands at over $4.6 billion, not only reflects steady demand from its customers but also offers long-term earnings and cash flow visibility. This enables the company to navigate uncertainty better than many of its peers.
Recently, FMC Technologies added 15 million shares to its stock repurchase program, joining many others that are returning cash to shareholders. We believe the enhanced buyback plan highlights the oilfield equipment supplier’s commitment to create value for shareholders, while still allowing the flexibility to continue pursuing growth in its retail and logistics businesses.
All in all, we believe FMC Technologies is favorably positioned to continue accelerating revenue/earnings growth over the next few quarters and could be used as a short-term investment.