We are maintaining our Neutral recommendation on FMC Technologies Inc. (FTI) with a target price of $64.
 
We like FMC Technologies’ diversified product portfolio, specialty service capabilities and proprietary technological expertise. A strong presence in the subsea systems market, growing international operations and the still-favorable outlook for the deepwater offshore markets are other positives in the FMC Technologies story.
 
To date, FMC Technologies has remained relatively unscathed from the current economic downturn, as most of the company’s work contracts are with industry giants like Petroleo Brasileiro S.A. (PBR), StatoilHydro ASA (STO), and Total SA (TOT). The oil drilling equipment maker also maintains a healthy backlog that offers long-term earnings and cash flow visibility.
 
Additionally, we believe order flow and backlog for subsea products and services will continue to be healthy and trend higher as the year goes by. FMC Technologies has seen strong demand for its subsea products as deepwater drilling booms in places like Brazil.
 
However, the pace of new capital equipment orders for FMC Technologies has remained sluggish over the last few quarters due to reduced exploration and development activity in the oil and gas industry. Though the situation has improved modestly in recent times (with oilfield service companies seeing more stable demand), we believe that the industry-wide slump is still far from over. As is the case with other equipment manufacturers, we expect FMC Technologies’ total margins to decline through the year, as the company recognizes the lower-margin backlog booked in 2009.
 
We also remain wary of the company’s operations in economically and politically volatile regions such as North Africa, West Africa, the Middle East, Latin America and Asia Pacific.
 
Considering these factors, we do not anticipate a significant upside and expect FMC Technologies to perform in line with the broader market.
Read the full analyst report on “FTI”
Read the full analyst report on “PBR”
Read the full analyst report on “STO”
Read the full analyst report on “TOT”
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