uploads///Hstorical Valuation

What Does FMC Technologies’ Historical Valuation Imply?


Nov. 20 2020, Updated 1:13 p.m. ET

FMC Technologies’ PE trend

FMC Technologies’ (FTI) price-to-earnings (or PE) multiple fell between 2014 and 2015. In 2015, FTI’s adjusted earnings fell by 17% compared to 2014. Its share price fell by 38% during the period. A steeper share price fall relative to its earnings fall caused a PE multiple fall over the past five years.

In 1Q16, FTI’s earnings fell more as the energy sector was gripped by energy price weakness and the US rig count continued to crash. FTI’s share price by the end of 1Q16 fell mildly compared to 4Q15, causing its PE multiple to rise.

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Forward PE considers sell-side analysts’ consensus estimate of earnings for the next four quarters. FTI’s forward PE of ~25x is higher than its current PE multiple, reflecting an expected sharp fall in its earnings over the next four quarters. This explains its low current PE multiple compared to its seven-year average.

Price-to-cash flow multiple

FTI’s price-to-cash flow (PCF) rose sharply until 2011, then it fell until 2014. In 2015, its PCF fell by over 2014 because FTI’s cash flow from operations rose while its share price fell.

Going forward, analysts expect the company’s PCF to rise, which reflects analysts’ expectations of lower cash flows in the next four quarters.

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FMC Technologies’ EV-to-EBITDA trend

FMC Technologies’ historical valuation, expressed as EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple, was volatile from 2009 to 2015. In 2015, FTI’s net debt fell. FTI’s share price also fell in 2014, causing its EV to fall.

FTI’s EBITDA fell in 2015 compared to 2014, partially offsetting its EV shrinkage. So, FTI’s EV-to-EBITDA multiple remained nearly unchanged in 2015 compared to 2014.

In 1Q16, FTI’s EV fell because its share price fell compared to 4Q15. Its trailing-12-month EBITDA fell more sharply during the same period. So, FTI’s EV-to-EBITDA multiple rose in 1Q16. Nabors Industries’ (NBR) trailing-12-month EV-to-EBITDA stood at 7.4x by the end of 1Q16, lower than FTI’s 10.1x.

FTI makes up 4.3% of the VanEck Vectors Oil Services ETF (OIH), an ETF tracking an index of 25 oilfield services companies.

Forward EV-to-EBITDA considers sell-side analysts’ consensus estimate of EBITDA for the fiscal year. FTI’s forward EV-to-EBITDA multiple for 2016 is higher than its current EV-to-EBITDA multiple. This implies that analysts expect a fall in FTI’s EBITDA in 4Q15. The expected fall in operating earnings also reflects FTI’s low current EV-to-EBITDA multiple compared to its seven-year average.

Next, let’s discuss FTI’s valuation compared to its industry peers’.


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