FMC Technologies’ (FTI) management believes that in fiscal 2016, offshore activities may stabilize at the fiscal 2015 level. Although the US energy market has remained soft, and onshore and offshore rig count has been significantly lower than a year ago, FTI’s Subsea segment received project awards that can help steady its revenues and income. These include Statoil’s Johan Sverdrup project in Norway and Shell’s Appomattox project in the Gulf of Mexico.
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In the company’s fiscal 3Q15 conference call, John T. Gremp, FTI’s chairman and CEO, noted, “Based on the number of named future Subsea projects, and the progress made on improving project economics, 2016 Subsea market activity has the potential to be on par with 2015. However, given the continued uncertainty of oil prices and capital spending by the operators, we lack the visibility to project Subsea orders for next year.”
Since weakness in North American drilling activities are expected to continue, FTI is focusing on reducing costs to maintain its bottom line. These initiatives include workforce restructuring, which may hit FTI’s fiscal 4Q15 net income.
In the fiscal 3Q15 conference call, Maryann T. Seaman, FTI’s chief financial officer, commented, “We’re continuing to reduce our operating cost structure for North America, while … integrating related products and services to deliver greater value to our customer. We expect these actions to continue through the fourth quarter and will result in further headcount reductions with an expected cost of approximately $4 million to $6 million. These actions will continue to reduce cost and improve our competitive position as the market recovers.”
Despite the unpredictability of energy price recovery, Wall Street analysts’ opinions show a healthy upside potential about FTI’s target prices in the next 12 months. While the highest target price for FTI is $50, the lowest is $29. The median target price, surveyed among the sell-side analysts, for FTI is ~$38. FTI is currently trading at ~$29, implying a 31% upside at its median price.
Weatherford International (WFT), FTI’s similar market cap peer in the oilfield equipment and service industry, received a $12.20 median target price. Relative to its current price of $7.80, this implies a 56% upside. FTI comprises 1.0% of the Energy Select Sector SPDR ETF (XLE).
Next, we will discuss FTI’s revenue and earnings by its segments.