iEPCI Model And Cairn Partnership Will Secure Direct Projects

Key Takeaways

• Strategic alliances and iEPCI model focus on direct award projects to enhance growth and project certainty, potentially boosting revenue.
  
• Innovative technology and operational improvements aim to reduce costs and ensure predictable earnings, supporting shareholder value through stable cash flow.
  
• Fluctuating commodity prices and regional economic challenges could impede project decisions, impacting revenue, net margins, and profitability for TechnipFMC.

Catalysts

Engages in the energy projects, technologies, systems, and services businesses in Europe, Central Asia, North America, Latin America, the Asia Pacific, Africa, the Middle East, and internationally.

• TechnipFMC's strategic alliances and iEPCI model, particularly the partnership with Cairn Oil & Gas, are designed to secure direct award projects, accelerating growth and potentially increasing revenue with enhanced project certainty.
  
• The Subsea Opportunities List, which has grown 20% over the last 12 months, with over $26 billion in potential deals, offers significant revenue opportunities, particularly as they execute on high-quality backlog orders.
  
• The implementation of innovative technology offerings like riserless coiled tubing through partnerships (e.g., Halliburton) enables TechnipFMC to provide value-added services that could enhance revenues and net margins by reducing operational costs for clients.
  
• Their operational improvements and business transformation initiatives (e.g., standardization and industrialization) bolster efficiencies, potentially leading to improved net margins and stronger cash flow generation.
  
• Limited exposure to U.S. land market fluctuations and tariffs, combined with a diversified revenue base, ensures more predictable earnings and cash flow, supporting a stable financial outlook and increasing shareholder value through higher free cash flow distributions and share repurchases.

TechnipFMC Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TechnipFMC's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.2% today to 10.0% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $2.86) by about May 2028, up from $854.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.4 billion in earnings, and the most bearish expecting $904 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.9x on those 2028 earnings, up from 14.3x today. This future PE is greater than the current PE for the GB Energy Services industry at 10.6x.
• Analysts expect the number of shares outstanding to decline by 2.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.06%, as per the Simply Wall St company report.

TechnipFMC Future Earnings Per Share Growth

Risks

• Commodity prices are a primary variable in TechnipFMC's clients' decisions to move forward on projects. A sustained decline in prices could impact customer budgets and reduce order intake, affecting future revenue.
  
• The U.S. land market is highly sensitive to commodity price fluctuations and higher development costs, which could impact TechnipFMC's Surface Technologies revenue and overall profitability.
  
• Tariff exposure, albeit limited, could still impact product-related revenue and add uncertainty to financial results, potentially affecting net margins.
  
• Economic feasibility of projects varies significantly by region, creating potential for delays or decreased investment in high-cost regions like U.S. Gulf, which might impact revenue growth.
  
• High-quality backlog depends on continued execution and order intake; any disruption in capacity or operational challenges could impact net earnings and cash flow.

Valuation

• The analysts have a consensus price target of $34.826 for TechnipFMC based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $24.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.1 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 14.9x, assuming you use a discount rate of 7.1%.
• Given the current share price of $29.15, the analyst price target of $34.83 is 16.3% 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.