TechnipFMC Stock: Room To Stay Bullish With Shares Near A 5-Year High (NYSE:FTI)

TechnipFMC Plc (NYSE:FTI) has gained momentum with shares up more than 25% just over the past month and currently trading near a five-year high.

Beyond a resurgence in the energy sector with the price of oil rallying to start the year, the story is a backdrop of strong operating and financial trends. We’ve been bullish on the stock highlighting the company’s impressive multi-year turnaround strategy delivering on a promise of more profitable growth.

While FTI is no longer the beaten-down value pick it may have been in 2022, we see room for further upside in shares benefiting from overall solid fundamentals. We highlight the points to watch ahead of the company’s upcoming quarterly report.

FTI Q1 Earnings Preview

FTI is set to release its Q1 earnings on April 25th before the market opens. The current consensus is for EPS of $0.16, which compares to a breakeven $0.00 result in the prior year quarter.

The forecast is for revenue to reach $1.98 billion, a 15% year-over-year increase, as a continuation of themes that gained traction into the second half of 2023.

The company last reported its Q4 results back in February with revenue up 22.6% y/y. Management has noted strong order growth for both Subsea Services and Surface Technologies, pushing the year-end backlog to $13.2 billion, up 42% y/y. This dynamic provides good visibility for conversion into sales over the next several quarters.

Compared to 2022 which was defined by supply chain disruptions and inflationary cost pressures, an improved financial performance is evident as the firm-wide adjusted EBITDA margin in Q4 climbed to 10.5% compared to 7.1% in the prior year quarter.

The result has been sharply higher profitability while free cash flow reached $468 million over the past year. TechnipFMC ended 2023 with just $116 million in net debt. We view the under-levered balance sheet as a strong point in the company’s investment profile.

Management sees 2024 revenue between $8.4 billion and $8.95 billion, representing an 11% y/y increase. Within this amount, a sequentially firming adjusted EBITDA margin should drive EPS higher.

What’s Next For FTI?

When looking at FTI, the biggest takeaway is that the recent results and trajectory into 2024 mark a new stage in the company’s transformation toward an expanded global scale, a de-levered balance sheet, and more sustainable growth.

According to consensus estimates, EPS is expected to climb 156% this year toward $1.15 which is in the context of depressed earnings at the start of 2023, just recovering from a 2022 net loss. As margins structurally climb higher, the market sees EPS 58% higher into 2025 and delivering another 37% increase for fiscal 2026.

A large part of the company’s strength is based on demand for its specialized technology and unique engineering, procurement, construction, and installation “iEPCI” system.

The idea here is that iEPCI integrates many of the steps in subsea projects that traditionally would have involved multiple suppliers. Ultimately the key benefit is a more efficient capital deployment with improved economics.

The opportunity for TechnipFMC is to gain incremental market share as its systems become the new industry standards. Global oil majors incentivized by the energy pricing environment looking to expand production or modernize existing operations are the key tailwinds for the company to continue growing.

Nearly $14 billion in subsea opportunities have been identified over the next 24 months with a setup here being that a higher price of oil makes it more likely these projects go forward as a tailwind for the stock.

In terms of valuation, we believe FTI remains attractive trading at a 9.4x EV to forward EBITDA multiple. This level is in line with industry peers such as Schlumberger Ltd (SLB) and Baker Hughes Co (BKR), recognized as competitors, trading around the same 9x level.

At the same time, we believe FTI’s higher level of earnings growth as well as its stronger balance sheet justifies a wider premium to the group as part of the bullish case for the stock.

FTI currently trading around $27.00 per share is at its highest level since 2018. We make the case that the company’s outlook today is stronger than ever, and supports an even higher stock price.

Final Thoughts

The message here is to stay bullish on FTI with an expectation for earnings to accelerate this year. A price target of $32.00 for the stock, implies an 11x EV to forward EBITDA multiple or 17x looking out to the current consensus 2025 EPS of $1.83.

On the downside, the main risk to consider is that sentiment towards the energy sector turns lower for any number of reasons. While the company doesn’t have direct exposure to the price of oil, a deeper correction would likely pressure project activity in the sector and force a reset of growth expectations.

For the upcoming Q1 earnings report, we want to see those margins remain elevated with positive color on the side of inbound orders and the evolution of the backlog. The potential that the company exceeds expectations should be a catalyst for the stock.