Although this equipment maker posted a loss of $0.14 per share for its first quarter, the company’s results did beat Wall Streets’ forecasts of a $0.16 per share loss. The company also topped revenue estimates. The shares were recently upgraded to ‘Buy’ at Gabelli & Co.
Forum Energy Technologies (FET)
From Capitalist Times
Capital equipment provider Forum Energy Technologies (FET) historically has generated about 60% of its revenue from consumables and offers exposure to the near-term rig and pressure-pumping upgrade cycles in the US. The trend toward drilling longer laterals and more intense hydraulic-fracturing jobs—more stages, more water and more proppant—should drive demand for consumables and after-market parts as activity levels ramp up.
In the fourth quarter, the company reported $183 million in inbound orders, a 26% increase from the previous three months and a doubling from year-ago levels. Over this period, five of the company’s six product lines posted sequential revenue growth, with North America accounting for 76% of the firm’s total revenue.
Orders in Forum Energy Technologies’ drilling product segment surged 20% sequentially, fueled by robust demand for consumable products used on rigs and 7,500-psi mud-pump upgrades. Surface production was another bright spot, with orders up 66% in the fourth quarter. This business, which specializes in process equipment at the well site to prepare oil and gas for transmission, received a $16 million award from a large US independent to support its development activity over the course of 2017.
Orders in the completions segment ticked up 18 %, fueled by customer spending on downhole products and pressure-pumping consumables. Management indicated that customers continue to plan for significant horsepower additions and utilization rates, which bodes well for new orders and equipment recertification as well as replacement of consumables. Although the company’s subsea business continues to face headwinds, orders from outside the oil and gas industry came in strong during the fourth quarter.
Momentum in North America prompted management to call for sequential sales growth of 10 to 15% in the first quarter. Forum Energy Technologies’ stock pulled back a bit after the company announced fourth-quarter results, reflecting disappointment with the magnitude of revenue growth and guidance that rising expenses related to ramping up capacity could constrain margin expansion.
Forum Energy Technologies remains an active acquirer, purchasing Cooper Valves during the fourth quarter as part of a plan to build its presence in the Middle East. The company has about $234 million in cash after completing an equity raise, leaving plenty of dry powder for tuck-in acquisitions on the drilling and completion side.
Offering leveraged exposure accelerating (and intensifying) drilling and completion activity in the US onshore market, Forum Energy Technologies rates a buy below $22 for aggressive investors. Prospective buyers should consider easing into this position to take advantage of any acquisition-related weakness or selloffs in oil prices.
Elliott Gue, Capitalist Times, www.capitalisttimes.com, 888-960-2759, April 28, 2017