Companies threatened by plunging oil prices may find redemption in overly pessimistic analyst estimates made during last year’s slump in crude.
So says Andrew Cosgrove, a senior energy analyst at Bloomberg Intelligence. It played out today in FMC Technologies Inc., which jumped the most in five years after first-quarter earnings beat Wall Street predictions thanks to subsea technologies revenue. Its shares rose 7.5 percent to $40.56, the most in the Standard & Poor’s 500 Index.
Given how far analyst forecasts have fallen, FMC’s experience could be mirrored in companies such as National Oilwell Varco Inc. and Cameron International Corp., which have underperformed the oil services industry, Cosgrove said from Princeton, New Jersey.
“Any beat expectations or better-than-forecast type information or type of guidance could definitely give your short-term investors a reason to buy up these names,” he said.
FMC, based in Houston, said total revenue fell 7 percent from a year ago to $1.7 billion, which missed estimates, while earnings of 63 cents a share beat forecasts for 59 cents, according to a statement released yesterday after the close.
“We delivered solid first quarter earnings, largely the result of the continued strength of our subsea technologies performance,” John Gremp, chairman and chief executive officer of FMC Technologies, said in the release.
Subsea products include equipment and technology that are required to explore, drill and develop offshore oil and gas fields. The International Energy Agency has estimated there are more than 300 billion barrels of oil buried deep under the ocean, larger than the unextracted reserves of Saudi Arabia or Venezuela.
Harvesting those barrels isn’t cheap. Because of regulatory changes, subsea projects face higher costs, a challenge for an industry that had struggled to make projects profitable when oil was $100 a barrel.
Gremp said March 26 that cutting costs 20 percent from last year’s levels would make the majority of deep-water projects viable at $70 oil. U.S. crude settled Wednesday at $56.16 a barrel in New York.
“We are leveraging our backlog and execution momentum, while taking actions in all of our businesses to strengthen our operating structure,” Gremp said in the release.