Innovative Subsea Expansion And iEPCI Success Drive Global Growth And Shareholder Returns

Key Takeaways

• Focus on industrialization and standardization, along with integrated business models, could enhance efficiency and positively impact net margins.
  
• Expansion into new geographic areas and record subsea orders suggest potential revenue growth and earnings improvement.
  
• Regional dependence and geopolitical uncertainties may hinder revenue and cash flows, while execution risks threaten project margins and profitability.

Catalysts

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

• TechnipFMC's continued focus on industrialization and standardization, along with integrated business models, is expected to enhance execution efficiency and predictability, likely impacting net margins positively.
  
• Record subsea backlog and significant new orders, particularly driven by unique iEPCI offerings and high-pressure, high-temperature reservoirs, suggest strong anticipated revenue growth in the subsea segment.
  
• Expansion into new geographic areas, including increased activities in the Middle East with a new facility in Saudi Arabia, could drive international revenue growth and earnings improvement.
  
• Increasing client preference for iEPCI and Subsea 2.0 technologies, which provide competitive advantages and higher project success rates, can lead to margin expansion and revenue increases.
  
• Strong shareholder capital return policy, including a $1 billion increase in share repurchase authorization and plans to nearly double shareholder distributions, is likely to boost earnings per share (EPS).

TechnipFMC Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TechnipFMC's revenue will grow by 8.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.3% today to 9.4% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $2.68) by about November 2027, up from $637.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.2 billion in earnings, and the most bearish expecting $814 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 2027 earnings, down from 19.2x today. This future PE is lower than the current PE for the GB Energy Services industry at 16.6x.
• Analysts expect the number of shares outstanding to decline by 2.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.13%, as per the Simply Wall St company report.

TechnipFMC Future Earnings Per Share Growth

Risks

• Reliance on Petrobras projects and market dynamics in Brazil, where TechnipFMC has significant operations, presents regional dependency risks that can potentially impact revenue if conditions change unfavorably.
  
• Exposure to fluctuating foreign exchange rates and potential impacts from restructuring, impairment, and other charges pose a risk to net margins and earnings stability.
  
• Economic and geopolitical uncertainties, particularly in regions like the Middle East where TechnipFMC has key projects, could adversely affect revenue and cash flows if political or economic conditions become unstable.
  
• The integration and industrialization strategies, including the use of flexible pipe technology, while advantageous, might face execution risks, potentially impacting project margins and overall profitability.
  
• Competitive pressures and vessel market tightness could increase costs and squeeze margins, affecting the company's ability to maintain earnings growth as anticipated.

Valuation

• The analysts have a consensus price target of $31.78 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 $37.0, and the most bearish reporting a price target of just $8.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $11.3 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 8.1%.
• Given the current share price of $28.77, the analyst's price target of $31.78 is 9.5% 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.