Headquartered in London, TechnipFMC plc (FTI) engages in the oil and gas projects, technologies, and systems and services businesses. It operates through two segments, Subsea and Surface Technologies.

FTI shares have declined 42.9% in price over the past year and 12.5% over the past six months to close its last trading session at $6.96. However, recent positive developments at the company and considerable hedge fund interest helped the stock to surge 19.5% in price over the past month.

FTI recently announced the sale of nine million Technip Energies N.V. shares through private sale transactions, retaining a direct stake of approximately 7% of Technip Energies’ share capital. During the third quarter, the company sold more than 75% of its stake in Technip Energies, and a portion of the proceeds was used to reduce its outstanding debt by $185 million in the quarter. The company has total debt of $3.06 billion, and its trailing-12-month cash balance is $1.56 billion, which translates to net debt of $1.50 billion. FTI’s debt-to-free-cash-flow ratio is negative 3.78, indicating that the company is not generating sufficient cash flow to meet its debt obligations. Also, its trailing-12-month levered FCF came in at a negative $2.71 billion.

So, here is what we think could shape FTI’s performance in the near term:

Strategic Partnerships

On January 18, FTI and Magnora ASA announced that their partnership, Magnora Offshore Wind AS, has been offered the opportunity to enter into an option agreement for the N3 area by the Crown Estate Scotland in the ScotWind leasing round for a wind farm, which will have a total capacity of approximately 500 megawatts (MW) with the potential to power more than 600,000 homes in the United Kingdom.

Moreover, in November, FTI signed a memorandum of understanding with Orbital Marine Power (Orbital), a pioneer of tidal energy technology, to collaborate on and accelerate the global commercialization of Orbital’s technology and deliver the first commercial scale floating tidal field. Given the increasing demand for renewable energy, these new energy ventures should aid the company’s growth in this space and enable it to capitalize on the growing market over the long term.

FTI also agreed  with PETRONAS Technology Ventures Sdn Bhd (PTVSB), a subsidiary of PETRONAS, to commercialize a unique natural gas processing membrane that reduces greenhouse gas (GHG) emissions. Luana Duffé, Executive Vice President, New Energy Ventures at TechnipFMC, commented: “Our ability to industrialize processes is at the core of this partnership, which is another important step in TechnipFMC’s efforts to help our clients reduce their upstream carbon footprint.”

Poor Financial Growth

For its fiscal third quarter, ended September 30, FTI’s revenue declined 8.6% year-over-year to $1.58 billion. The company’s adjusted loss came in at $25 million, indicating an increase of 26.9% from its year-ago value, while its adjusted loss per share stood at $0.06, indicating a 50% rise year-over-year. Also, the company’s inbound orders were down for the quarter. Inbound orders decreased 24.7% year-over-year to $1.37 billion, and its backlog stood at $7 billion, reflecting a 7.7% decline from the prior-year quarter.

Mixed Profitability

FTI’s 9.60% and 14.75% respective EBITDA and gross profit margins are 53.8% and 62.1% lower than the 20.79% and 38.88% industry averages. Also, its negative 20.84% levered FCF margin is substantially lower than the 9.89% industry average.

However, FTI’s 10.53%, 1.26%, and 6.51% respective ROE, ROA, and ROT compare with the 2.79%, 1.04%, and 3.51% industry averages.

POWR Ratings Reflect Uncertain Prospects

FTI has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Momentum. This is justified because the stock is trading above its 50-day moving average but below its 200-day moving average.

FTI has a D grade for Stability, in sync with its 2.14 beta.

Of the 41 stocks in the Energy - Services industry, FTI is ranked #16.

Beyond what I have stated above, you can also view FTI’s grades for Quality, Growth, Sentiment, and Value here.

View the top-rated stocks in the Energy – Services industry here.

Bottom Line

FTI has entered strategic partnerships that could bolster its position in the renewable energy space over the coming years. However, the company might not register immediate gains from the ventures. Analysts expect the company’s revenues to decline 53.6% year-over-year in the quarter ending December 2021, while its EPS is expected to be negative. Furthermore, the company’s negative debt- to-free-cash-flow ratio raises doubts about its liquidity position and ability to meet its obligations. So, we think it could be wise to wait for its prospects to improve before investing in the stock.

How Does TechnipFMC plc (FTI) Stack Up Against its Peers?

While FTI has an overall POWR Rating of C, one might want to consider looking at its industry peers, Rex American Resources Corp. (REX), which has an A (Strong Buy) rating, and North American Construction Group Ltd. (NOA) and Subsea 7 S.A. (SUBCY) which have a B(Buy) rating.

FTI shares were trading at $6.93 per share on Wednesday morning, down $0.03 (-0.43%). Year-to-date, FTI has gained 17.06%, versus a -3.56% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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