FMC Tech's (FTI) Subsea Ambitions Will Pay Off for Shareholders - Barron's

January 9, 2013 8:27 AM EST
FMC Technologies (NYSE: FTI) is in a prime position to benefit from future deep sea drilling for oil and nat gas. And that could be a boon for investors willing to take the leap.

According to Barron's, FMC has a leading position in the deepwater pipe and valve segment, a segment that is expected to grow markedly over the next several years and demand for energy remains high. Having slid about 22 percent off of annual highs, the prospect should bolster sentiment in the shares.

Just tell that to Wall Street. On Tuesday, Sterne Agee upgraded that stock while RBC Capital cut its rating. Sterne expects improvement in pricing and margins this year, while RBC said new employee hires could pressure margins on any contract delays.

For fiscal 2012, subsea activity will account for 65 percent of the expected $6.05 billion in revenue. The other portion will be from land ops, which have seen margins crimped on nat gas oversupply. Barron's believes that bad news surrounding nat gas might already be priced into the stock.

Despite FMC going for about 18 times earnings, some think the multiple is reasonable given the secular growth story. One analyst from Brown Advisory says improvement in FMC's subsea business should easily outweigh challenges in the North American land business.

One of the recent setbacks for FMC was being understaffed relative to new orders, resulting in delays. Though margins in the segment are tighter than the land business, a boost in orders should still bolster profits moving forward. Competition from the likes of Cameron (NYSE: CAM), General Electric (NYSE: GE), and Schlumberger (NYSE: SLB) will also be a challenge, and any drop in Brent crude prices would hamper oilfield-services companies, though prices would have to drop to $80 per barrel for any significant impact to be felt.

Given expectations for firm crude prices in 2013 and the need for more deepsea activity, FMC holders won't have to "dig deep" for return.

Shares are flat in early trading Wednesday.

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