February 23, 2023
Covered Call/Buy-Write: Buy TechnipFMC (FTI) Stock and Sell the April 14 Call (exp. 4/21) for a net price of $13.25 or less.
I’ve had my eye loosely on TechnipFMC (FTI) for the past several months as the “energy play” has held up very well, despite oil and natural gas falling. This relative strength was impressive.
Fast forward to this morning, and the stock is trading higher by 9% following an earnings beat, and at a new 52-week high.
Because FTI isn’t the “fastest horse” and the market is back in no man’s land, let’s get involved with FTI via a covered call which will profit should the stock trade sideways, or move higher.
To execute this trade you need to:
Buy FTI Stock
Sell to Open the April 14 Call
For example, you can buy FTI stock at 14.25, and sell the April 14 call for $1 (approximately).
For every 100 shares of FTI stock you buy, you can sell 1 call.
For every 200 shares of FTI stock you buy, you can sell 2 calls.
And so on.
The most you can lose on this trade is $1,325 per covered call if FTI goes to zero.
The most you can make on this trade is $75 per covered call, or a yield of 5.66%, should FTI close above 14 on April expiration.
The breakeven on this covered call is 13.25.
Please note, FTI is a stock that is rated Buy in the Cabot Early Opportunities portfolio. Here is some of what Tyler Laundon, the portfolio’s chief analyst, wrote about FTI when he bought it at 12.78 in early January:
TechnipFMC (FTI) is the largest pure-play provider of integrated deep-water offshore oil and gas development solutions. It sells all types of subsea equipment and controls, and provides subsea engineering and construction services. The company also provides equipment and services to the onshore and shallow water markets.
TechnipFMC’s front-end teams work with customers early on to gain a holistic understanding of the client’s needs. By building out its integrated engineering, procurement, construction and installation (iEPCI) capabilities, along with its Subsea 2.0 platform of modular technologies and fleet of specialized vehicles, TechnipFMC can now deliver and install equipment from the sea floor to the surface.
These integrated solutions drive cost savings and production efficiencies for clients. That has helped the company build a loyal and increasingly profitable customer base. Recent contracts with Wintershall, Shell (SHEL) and TotalEnergies (TOT), among others, show the trends remain strong.
Management says that around 70% of subsea bookings are now direct awarded, including those from integrated Front-End Engineering and Design (iFEED) projects and partnerships. Direct award projects include more favorable pricing terms than competitive bids.
Another driver of profit margin growth is a configure-to-order (CFO) manufacturing model (reduces inventory, lowers capital requirements), which pairs well with the company’s modular Subsea 2.0 architecture.
The bottom line is that EBITDA margin (a measure of profits before interest, taxes, depreciation and amortization) in 2022 should be about 11.6% and could grow to 15%, or higher, by 2025.
Zooming out, TechnipFMC is one of the best ways to gain exposure to a strong offshore and subsea oil and gas market.
Management has indicated a quarterly dividend is coming in the second half of 2023.
|Position (Original)||FTI April 14 Covered Call|
|Position Strategy||Covered Call|
|Opened Date||February 23, 2023|
|Expiration||April 21, 2023|