On Jul 8, 2013, we retained our Neutral recommendation on oil
drilling equipment maker
FMC Technologies Inc.
). Our investment thesis is supported by a Zacks Rank #3 (Hold).
Why the Reiteration?
The company has a diversified product portfolio, specialty
service capabilities and proprietary technological expertise.
Other positives for FMC Technologies include a strong backlog
position, growing international operations and a favorable
outlook for subsea activity levels. However, we think the current
valuation is fair and adequately reflects the company's future
FMC Technologies is particularly well positioned in the subsea
systems market. It is the company's largest and fastest-growing
business, accounting for about two-thirds of revenue. Subsea
products have seen an increase in interest, and we expect
earnings in this segment to strengthen - especially due to FMC
Technologies' leadership position in subsea production systems,
including subsea trees, controls and manifold and tie-in systems.
Order flow and backlog for subsea products and services will
continue to be healthy and trend higher. FMC Technologies remains
poised to receive a large share of big contracts moving forward.
We are further encouraged by the company's recent subsea
equipment deals with industry giants like Brazil's state-run
energy powerhouse Petroleo Brasileiro S.A., or
) and French major
FMC Technologies' strong backlog, which now stands at more than
$5 billion, not only reflects steady demand from its customers
but also offers long-term earnings and cash flow visibility. This
enables the company to navigate uncertainty better than many of
However, we have a difficult time justifying a sufficient enough
potential return to support an Outperform rating. Moreover, with
markets remaining competitive and pricing likely to be weak, we
believe FTI shares are fairly valued and expect them to perform
in line with the broader market.
Stocks That Warrant a Look
While we expect FMC Technologies to perform in line with its
peers and industry levels in the coming months and advice
investors to wait for a better entry point before accumulating
shares, one can look at
) as a good buying opportunity. This U.S. energy machineries
provider - sporting a Zacks Rank #1 (Strong Buy) - has a solid
secular growth story with potential to rise significantly from
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