FTI: Subsea Margin Ambitions Will Struggle To Justify Elevated Share Price

We are raising our fair value estimate for TechnipFMC from $30.00 to approximately $37.73 per share, reflecting analysts' higher price targets and greater confidence in the company's ability to convert robust EBITDA into free cash flow and expand subsea margins above prior expectations.

Analyst Commentary

Recent Street research has turned increasingly constructive on TechnipFMC, with multiple firms lifting price targets into the high 40s and low 50s and reiterating positive ratings. Updated models generally reflect strong third quarter execution, rising confidence in free cash flow conversion, and management's higher medium term subsea margin framework.

Analysts now see TechnipFMC converting roughly 70 percent of just over 1.8 billion dollars in EBITDA into free cash flow, reinforcing the view that the company is transitioning from a backlog growth story to a more cash generative profile. This shift, combined with enhanced shareholder return plans, is a key driver behind the higher fair value estimates and price targets.

Upbeat commentary also highlights 2026 subsea margin guidance of 20.5 percent to 22 percent, with the midpoint sitting above current consensus expectations. The improved outlook has been accompanied by share price outperformance versus sector benchmarks, reflecting growing confidence in TechnipFMC's ability to capture a larger share of the economics from its customers' offshore developments.

At the same time, JPMorgan and other major firms emphasize that the favorable subsea demand backdrop must still translate into consistent execution, including the goal of achieving 30 billion dollars in subsea inbound orders over a three year period. While the order pipeline and margin guidance are supportive of a higher valuation, the stock's recent rerating leaves less room for missteps on delivery and capital allocation.

Bearish Takeaways

• Bearish analysts caution that the rapid share price appreciation and successive price target increases may have pulled forward a substantial portion of the upside, leaving limited valuation cushion if subsea order intake or margin expansion undershoots targets.
• Some see execution risk around sustaining 20 percent plus subsea margins across a multi year cycle, noting that cost inflation, competitive pressure, or project delays could cap upside to current earnings and cash flow expectations.
• There is concern that the ambitious 30 billion dollar subsea inbound order goal and elevated free cash flow conversion assumptions could prove optimistic if offshore spending normalizes or macro conditions deteriorate, which could pressure growth and returns.
• Bearish analysts also highlight the potential for volatility in shareholder return plans, warning that higher capital return expectations embedded in valuation could be challenged by working capital swings or a weaker than expected cycle.

What's in the News

• Awarded a substantial iEPCI contract by Eni for the deepwater Maha project offshore Indonesia, marking Eni's first use of TechnipFMC's Subsea 2.0 configure to order technology in the country, with systems tying back to the Jangkrik FPSO (Key Developments).
• Secured a substantial contract from ExxonMobil Guyana to supply Subsea 2.0 based production systems for the Hammerhead development in the Stabroek Block, covering project management, engineering, and manufacturing for production and water injection (Key Developments).
• Received a significant subsea production systems contract from Petrobras spanning greenfield projects, brownfield expansions, and asset revitalizations, with equipment to be manufactured and serviced locally in Brazil (Key Developments).
• Awarded significant contracts from Chevron for Gorgon Stage 3 and from Ithaca Energy for the Captain field, expanding deployment of Subsea 2.0 trees, flexible risers, and flowlines in Australia and the U.K. North Sea (Key Developments).
• Increased its equity buyback authorization by 2 billion dollars to 3.8 billion dollars and completed repurchases totaling about 14 percent of shares outstanding under the program announced in 2022 (Key Developments).

Valuation Changes

• Fair Value: raised significantly from $30.00 to approximately $37.73 per share, implying a higher intrinsic valuation.
• Discount Rate: edged down slightly from 7.16 percent to about 7.14 percent, modestly lowering the hurdle rate applied to future cash flows.
• Revenue Growth: reduced moderately from roughly 4.24 percent to about 3.69 percent, reflecting a more conservative top line outlook.
• Net Profit Margin: increased meaningfully from about 8.90 percent to roughly 10.67 percent, indicating higher expected profitability on projected revenues.
• Future P/E: decreased slightly from around 15.45 times to about 14.29 times, suggesting a modestly lower earnings multiple embedded in the updated valuation framework.