Go to ...

ModernGraham

Value Investing Research Since 2006

RSS Feed

Wednesday, July 26, 2017

FMC Technologies Inc. Quarterly Valuation – October 2014 $FTI


FTI Logo_277x38Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Highest Dividend Yields Among Undervalued Companies for the Defensive Investor – October 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how FMC Technologies Inc. (FTI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): FMC Technologies, Inc. designs, manufactures and services systems and products, including subsea production and processing systems, surface wellhead production systems, high pressure fluid control equipment, measurement solutions and marine loading systems for the energy industry. Its segments are Subsea Technologies, which designs and manufactures products and systems and provides services used by oil and gas companies; Surface Technologies, which designs and manufactures products and systems and provides services used by oil and gas companies involved in land and offshore exploration and production of crude oil and natural gas, and Energy Infrastructure, which offers Measurement Solutions and Loading Systems. In January 2013, it purchased a 173-acre parcel of land in Houston, Texas. In May 2014, the Company completed divestiture of its material handling products business to Syntron Material Handling, LLC.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $54.77
MG Value $54.83
MG Opinion Fairly Valued
Value Based on 3% Growth $31.42
Value Based on 0% Growth $18.42
Market Implied Growth Rate 8.39%
Net Current Asset Value (NCAV) $0.09
PEmg 25.28
Current Ratio 1.63
PB Ratio 4.89

Balance Sheet – September 2014

Current Assets $4,403,000,000
Current Liabilities $2,698,000,000
Total Debt $1,337,000,000
Total Assets $7,034,000,000
Intangible Assets $859,000,000
Total Liabilities $4,381,000,000
Outstanding Shares 237,000,000

Earnings Per Share

2014 (estimate) $2.79
2013 $2.10
2012 $1.78
2011 $1.64
2010 $1.53
2009 $1.44
2008 $1.39
2007 $1.13
2006 $0.99
2005 $0.38
2004 $0.42

Earnings Per Share – ModernGraham

2014 (estimate) $2.17
2013 $1.80
2012 $1.62
2011 $1.50
2010 $1.39
2009 $1.23

Dividend History
FMC Technologies does not pay a dividend.

Conclusion:

FMC Technologies is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s low current ratio, the lack of dividends, and the high PEmg and PB ratios.  The Enterprising Investor’s only issue is with the lack of dividend payments.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.39 in 2010 to an estimated $2.17 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 8.39% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on FMC Technologies Inc. (FTI)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in FMC Technologies Inc. (FTI) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Tags: , , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *

More Stories From Oil & Gas

About Benjamin Clark