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Gold/Mining/Energy : FMC Technologies

FTI 41.35

-1.1%

Oct 31 9:30 AM EST

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From: Dennis Roth	10/31/2007 8:19:29 AM
	of 20

Offshore project delays may postpone upside in FTI shares - Goldman sachs - October 31, 2007 What's changed Reported EPS of $0.60 came in $0.05 above our and consensus estimate of $0.55. However, outperformance was driven by non-core segments and favorable foreign currency gains. We raised our 2007 and 2009 EPS estimates by $0.04 and $0.05 to $2.21 and $3.34. Our 2008 EPS estimate is unchanged. We adjusted our 12-month price by $1 to $57 (16.5x 08E DACF) Implications (1) We believe that Tuesday’s 10% sell-off highlights investors’ high expectations for FTI going into the quarter. FTI’s P/E multiple expanded by ~ 40% over the past 3 months fueled by a strong secular growth outlook for subsea and expectations for positive EPS revisions, in our view. However, this outlook was tempered following weaker than expected results in FTI’s core Energy segments and Quest Offshore’s reduced forecast for subsea tree awards (23% lower in 2008 and 12% lower for 2008-2011). We expect subsea projects to continue to face delays due to a number of factors including sanctioning issues and limited rig availability. (2) FTI’s valuation continues to appear expensive relative to the group despite the pullback. We are strong believers of the secular growth of subsea and view FTI as the clear market leader. However, we would look for a better entry point before adding to positions. (3) We view the spin-off of FoodTech and Airport as neutral. We estimate the value of the segments to be between $650 million and $800 million or roughly 7.0x-8.5x 2008E EBITDA based on our DCF analysis. For comparison purposes, the oil service group is currently trading at 8.8x 2008E EV/EBITDA. Valuation FMC Technologies is trading at 2008 EV-DACF/P-E of 17.4x/22.0x versus Cameron at 15.3x/18.1x and NOV at 12.3x/14.6x. Key risks Key risks include a sustained decline in commodity prices and the broader stock market indices.

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