Global Energy Transition Will Fuel Deepwater And Offshore Wind Growth

Key Takeaways

• Deep revenue visibility, strong client engagement, and an expanding backlog position Subsea 7 for sustained earnings and utilization growth through industry cycles.
  
• Strategic integration, renewables expansion, and technological investment create lasting competitive advantages, supporting more resilient and higher margin performance than peers.
  
• Heavy reliance on oil and gas projects, limited renewables exposure, and margin pressures make Subsea 7 vulnerable to energy transition risks and financing challenges.

Catalysts

Subsea 7 S.A. delivers offshore projects and services for the energy industry worldwide.

• Analyst consensus highlights Subsea 7's rising backlog and project quality, but significantly understates the company's multi-year revenue visibility and margin potential, as current bid activity and deep engagement with clients point toward line-of-sight not just for 2025, but well into 2027, supporting higher utilization and driving earnings growth through the cycle.
  
• While analysts broadly recognize the value of the BP Alliance and portfolio-level collaboration, they underestimate how early-phase engineering integration, pre-agreed profit mechanisms, and serial contract awards in multiple geographies will structurally lift net margins and smooth earnings volatility, given contract incentives and first-mover advantage in new basins.
  
• The accelerating global pivot to deepwater projects-as shallow and onshore reserves decline-ensures a multi-decade tailwind for Subsea 7's subsea and engineering expertise, which should translate into stronger revenue growth and higher, more defensible margins relative to peers at every stage of the industry cycle.
  
• Subsea 7's rapidly expanding presence in offshore wind, especially in Europe and Taiwan, positions the company to disproportionately benefit from rising government auction volumes and structural undercapacity, making Renewables a powerful driver of high-margin, countercyclical growth as decarbonization drives sector investment.
  
• The company's heavy investment in technology, digitalization, and integrated EPCI offerings is not just about operational efficiency, but is establishing a growing competitive moat that enables Subsea 7 to capture larger, more complex projects and maintain pricing power-boosting both backlog quality and margin expansion opportunities into the late 2020s.

Subsea 7 Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Subsea 7 compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Subsea 7's revenue will grow by 6.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.8% today to 10.4% in 3 years time.
• The bullish analysts expect earnings to reach $877.1 million (and earnings per share of $3.18) by about July 2028, up from $193.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.3x on those 2028 earnings, down from 30.4x today. This future PE is greater than the current PE for the GB Energy Services industry at 7.9x.
• Analysts expect the number of shares outstanding to decline by 1.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Subsea 7 Future Earnings Per Share Growth

Risks

• Subsea 7's financial performance and backlog remain heavily reliant on new offshore oil and gas projects, making future revenues and earnings vulnerable to long-term declines in global demand for fossil fuel infrastructure as the energy transition accelerates.
  
• Despite expansion in renewables, the company's exposure to renewable energy remains small relative to oil and gas, leaving net income and earnings growth exposed to faster-than-expected advancements and cost declines in renewables that could erode the hydrocarbon project pipeline.
  
• Intensifying global competition for subsea and renewables contracts, combined with customers pushing for more cost-competitive bids and less favorable contract terms, presents risks of margin compression that could limit growth in net margins and overall profitability.
  
• Project execution risks remain high, as evidenced by reliance on one-off settlements and end-of-project cost reversals; persistent delays, technical challenges, or cost overruns on complex projects could result in write-downs, eroding net margins and future earnings.
  
• Investors are increasingly shunning fossil fuel-focused companies, raising the risk of higher financing costs or constrained access to capital, which could impact Subsea 7's ability to fund working capital and capex, thereby pressuring both revenue growth and net income.

Valuation

• The assumed bullish price target for Subsea 7 is NOK261.68, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Subsea 7's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK261.68, and the most bearish reporting a price target of just NOK158.65.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $8.4 billion, earnings will come to $877.1 million, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 7.0%.
• Given the current share price of NOK200.4, the bullish analyst price target of NOK261.68 is 23.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.