Subsea Innovations And Middle East Expansion Propel Future Growth And Profitability

Key Takeaways

• Strategic focus on iEPCI and Subsea 2.0 drives backlog growth and improves order quality, enhancing future revenue and margin prospects.
  
• Expansion in Subsea services and Surface Technologies supports revenue growth, with strong capital allocation strategies boosting earnings per share.
  
• Exposure to geopolitical risks, execution challenges, and currency fluctuations could negatively affect revenue, net margins, and earnings forecasts.

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 strategic focus on iEPCI, Subsea 2.0 technology, and integration is driving an increasing backlog and higher quality of orders, which is expected to positively impact future revenues and net margins.
  
• The strong growth in Subsea services, fueled by the company's robust iEPCI offering and expanding installed base, is anticipated to enhance recurring revenues and potentially improve net margins.
  
• The expansion of Surface Technologies through key projects in the Middle East, supported by new capabilities from the Saudi Arabia facility, presents a differentiated growth opportunity expected to bolster revenue growth and earnings.
  
• Increased share repurchase authorization and distribution targets signal a robust capital allocation strategy that could drive higher earnings per share (EPS) through reduced share count.
  
• TechnipFMC’s visibility into a record $25 billion Subsea opportunities pipeline, including emerging markets and new frontiers, suggests strong demand, which is likely to support sustained revenue growth and profitability well into the future.

TechnipFMC Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TechnipFMC's revenue will grow by 9.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.3% today to 9.6% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $2.62) by about October 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 15.0x on those 2027 earnings, down from 17.4x today. This future PE is lower than the current PE for the GB Energy Services industry at 17.4x.
• Analysts expect the number of shares outstanding to decline by 0.29% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 8.02%, as per the Simply Wall St company report.

TechnipFMC Future Earnings Per Share Growth

Risks

• There is a warning about placing undue reliance on forward-looking statements due to risks and uncertainties that could cause the actual results to differ materially. This could impact revenue projections and earnings forecasts.
  
• The company's exposure to geopolitical risks and potential economic instability in key markets like Brazil, the Middle East, and others could affect their revenue and net margins.
  
• Any challenges in managing execution risks related to the growth in vessel market demand or the delivery of large-scale projects could impact projected earnings and operating margins.
  
• Variability in currency exchange rates and foreign exchange losses witnessed in the financial results could have a negative effect on net income.
  
• The potential tax liability in future periods despite a positive current outlook due to a favorable earnings mix could impact net earnings and free cash flow.

Valuation

• The analysts have a consensus price target of $31.24 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 $11.6 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 15.0x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $26.1, the analyst's price target of $31.24 is 16.5% 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.