iEPCI And Subsea 20 Adoption Will Improve Efficiency And Client Engagement

Key Takeaways

• Expansion of the iEPCI model and Subsea 2.0 adoption are expected to enhance revenue growth and manufacturing efficiency without extra capital, improving margins.
  
• Strategic focus on Middle Eastern markets and cash flow distributions aim to increase project activity, revenue growth, and investor returns.
  
• TechnipFMC's reliance on subsea technology and ERP upgrades poses risks to revenue, cash flow, and shareholder returns amid potential macroeconomic and execution challenges.

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.

• The expansion of TechnipFMC’s unique iEPCI model, which facilitates integrated project execution and reduces cycle time, is expected to drive higher commitment and direct awards from clients, leading to potentially higher revenue growth.
  
• The increase in adoption of Subsea 2.0 and the configure-to-order model is anticipated to enhance manufacturing efficiency and output without necessitating additional capital expenditures, positively impacting net margins and earnings.
  
• The strategic focus on Middle Eastern markets and the proactive optimization of the Americas portfolio are forecasted to drive higher project activity and revenue growth in Surface Technologies.
  
• TechnipFMC’s commitment to sharing at least 70% of its free cash flow with shareholders in the form of distributions is set to enhance investor return expectations, potentially boosting earnings per share (EPS).
  
• The company’s emphasis on operational improvements, including simplification, standardization, and industrialization (SSI), across its processes is likely to lead to higher execution effectiveness and sustainable margin expansion over time.

TechnipFMC Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TechnipFMC's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.6% today to 10.0% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $2.84) by about April 2028, up from $869.6 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 $939 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2028 earnings, up from 12.2x 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 2.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.4%, as per the Simply Wall St company report.

TechnipFMC Future Earnings Per Share Growth

Risks

• TechnipFMC's surface technologies segment experienced a 9% revenue decline in the previous year, with revenue growth only managed by excluding the effects of recent sales, indicating potential challenges in this segment that could impact future revenue growth.
  
• The company's adjusted EBITDA is pressured by domestic market performance, particularly in North America, which impacts net margins, especially if international markets can't fully mitigate these declines.
  
• The company's substantial reliance on subsea technology growth, specifically iEPCI and Subsea 2.0, carries execution risk, as any technological or operational setbacks could impact their revenue generation and profitability.
  
• There is potential capital expenditure pressure as TechnipFMC embarks on their ERP upgrade alongside continued business optimization, which could impact free cash flow and ultimately limit shareholder returns.
  
• Although TechnipFMC achieved significant growth in backlog orders and investment-grade ratings, their financial guidance and success are closely tied to robust demand and client cycles; any macroeconomic factors causing a slowdown could materially affect cash flows and earnings.

Valuation

• The analysts have a consensus price target of $34.522 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 $43.0, and the most bearish reporting a price target of just $25.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.0 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 7.4%.
• Given the current share price of $25.2, the analyst price target of $34.52 is 27.0% 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.