FMC Technologies: Not Getting Worse In A Challenged Game

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  • FMC Technologies, Inc. FTI shares are down 29 percent year-to-date, and are trading significantly below their 52-week high of $59.71.
  • Credit Suisse’s James Wicklund upgraded the rating for the company from Underperform to Neutral and maintained a price target of $29.
  • Citing expected decline in Subsea revenues in 2016 and 2017, Wicklund said that the company should “outperform on a relative basis,” with any newsflow being more optimistic, since there are limited chances of disappointment.

Analyst James Wicklund expressed his concern regarding the 2-3 year order trend and the impact through the income statement. Subsea revenues are expected to decline by $500-600mm drop in 2016 and again in 2017, which is estimated to lower segment margins by 200-300 bps over the two years.

Despite the concerns, Wicklund said, “FTI should outperform on a relative basis,” relative to newsflow, income revisions and the duration of the U.S. onshore activity cycle.

U.S. onshore capital expenditure is expected to be down 20-35 percent in 2H15, with the U.S. oil rig count starting to decline again last week, following five weeks of “recovery.” Wicklund wrote, “We expect a wave of capex downgrades over the next few weeks,” while adding that this means utilization “will continue to drop,” pricing pressure “will increase” and the assumed recovery “will likely be pushed to the right.”

“Deepwater is clearly challenged,” the Credit Suisse report stated. The company indicated that a step-change is required in the way the industry operates and final investment decisions continue to be delayed.

“None of this is new news. The industry continues to work toward lowering costs. Any orders received, even if summing to paltry annual levels relative to recent history, are still new orders and positive news,” Wicklund commented.

The EPS estimates for 2015 and 2016 have been reduced from $2.34 to $2.22 and from $2.02 to $1.69, respectively.

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Posted In: Analyst ColorUpgradesAnalyst RatingsCredit SuisseJames Wicklund
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