The offshore drilling market is estimated to more than double in size by 2032, from $36.5 billion in 2023 to nearly $75 billion. Proponents of the technology, which involves subsea drilling for oil and gas, argue that it's cleaner than traditional extraction methods, due to lower emissions - while critics point to the potential for disaster, like the notorious Deepwater Horizon spill.
Amidst the ongoing energy debate, TechnipFMC (FTI) stands out as one name in the group that's well-positioned for growth. The company's stock is up 33.6% year-to-date (YTD), and Barclays recently named FTI its top offshore pick, highlighting its strong position in the industry.
As the brokerage firm adjusted its rating on a number of offshore energy stocks, Barclays praised FTI in particular as "the best way to play the duration of the offshore development cycle, with unmatched earnings visibility."
Plus, with a very sustainable dividend yield of 0.74% and a consensus “Strong Buy” rating from analysts, here's why outperforming FTI looks like an attractive investment for those seeking exposure to the offshore energy sector.
FTI Outperforms in Choppy Energy Sector Waters
TechnipFMC (FTI), with a market cap of $11.42 billion, has carved a niche for itself with its integrated Engineering, Procurement, Construction, and Installation (iEPCI) business model, allowing it to deliver and manage subsea systems and services within the offshore oil and gas industry.
FTI stock has delivered a remarkable YTD return of 33.7%, outpacing the VanEck Oil Services ETF's (OIH) gain of just 6.5%.
This outperformance can be attributed to FTI's strategic focus on the booming offshore market, which has insulated it from the challenges faced by its peers that are more heavily leveraged to the North American shale industry.
The company's recent earnings report for Q1 2024 revealed adjusted earnings of $0.22 per share, surpassing previous quarters and showcasing a robust financial performance. Revenue in the first quarter stood at $2.042 billion. The subsea segment, in particular, has been a key driver of growth, with a 5.6% sequential revenue increase to $1.7 billion.
Buying Into FTI's Growth Story
As Barclays recently highlighted, TechnipFMC has superior earnings visibility, with management calling out $2.4 billion of subsea orders during the first quarter, and a sequential increase to the backlog, which stands at $13.5 billion.
Recently, the company secured a substantial iEPCI contract from Woodside Energy (WDS) for the Xena Phase 3 development in Australia. This project involves designing, manufacturing, and installing subsea production systems, which will support ongoing production from the Pluto LNG Project.
Additionally, the company secured a large subsea contract from ExxonMobil (XOM) for the Whiptail project in Guyana’s Stabroek Block. This contract, valued between $500 million and $1 billion, involves delivering 48 subsea trees and associated equipment, reinforcing FTI's strong relationship with ExxonMobil and its pivotal role in one of the world's fastest-developing basins.
It's still possible to buy into FTI's growth at a reasonable valuation. At a forward price/sales of 1.30 and EV/sales of 1.44, the stock looks cheap compared to the broader energy sector.
Plus, its PEG ratio is a low 0.91, and the forward price/earnings ratio is 21.95, compared to its five-year average of 39.12.
Is FTI a Good Dividend Stock to Buy?
And of course, there's also FTI's commitment to shareholder returns. The company paused quarterly dividends for a while amid plunging pandemic-era commodity prices, but has since made a number of moves to bolster its balance sheet. As a result, S&P Global (SPGI) just raised its credit rating on the offshore driller.
The ratings agency wrote, in part, “we expect [TechnipFMC] will maintain a prudent financial policy, which includes balancing shareholder returns with further debt reduction, which should enable it to maintain appropriate credit metrics even at weaker points in the commodity price cycle.”
To that end, FTI currently pays a conservative $0.05 per share on a quarterly basis, yielding 0.74% at current levels. With a low payout ratio of 21.8%, this dividend is well-covered by earnings, with room for dividend increases in the future.
Analysts Are Bullish on FTI's Prospects
TechnipFMC has been riding a wave of positive sentiment from analysts. For Q2 2024, the company is expected to report EPS of $0.31 - up more than 200% year over year - with revenue forecasts ranging between $2.13 billion and $2.25 billion.
For the full year 2024, EPS estimates range from $1.09 to $1.28, with an average estimate of $1.18. At the midpoint, that implies annual growth of 162%. Revenue projections for the year range between $8.79 billion and $9.798 billion, with the consensus calling for 12% growth on the year.
Analysts have a consensus rating of "Strong Buy" on FTI stock. Out of 18 analysts, 14 have rated the stock as a “Strong Buy,” while 4 suggest a “Hold.”
Price targets for FTI further highlight the optimism surrounding the stock. The mean target price is $28.12, representing a potential upside of approximately 4.5% from Monday's close. Barclays has the Street-high $34 price target, suggesting the stock could rally as much as 26.3%.
Notably, institutional investors have shown substantial interest in TechnipFMC, with 96.58% of the company's stock held by institutions. Notable institutional buyers include Vanguard, T. Rowe Price, JPMorgan (JPM), and BlackRock (BLK), among others.
The Bottom Line on FTI Stock
TechnipFMC has proven itself as a formidable player in the offshore energy sector, with a robust financial performance, significant contract wins, and strong analyst support. The company's strategic initiatives and technological advancements have positioned it well for future growth. Investors looking for a blend of stability and growth in the energy sector should keep an eye on TechnipFMC as it charts new horizons in the offshore drilling industry.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
