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Why Shares of TechnipFMC Jumped 20% in July

What happened

After plunging 18.3% in June, shares of oil-field services stock TechnipFMC (NYSE: FTI) bounced back in July and rose 20.2%, according to data from S&P Global Market Intelligence.

In addition to its strong second-quarter 2022 earnings report, investors celebrated the company's auspicious forecast for the remainder of 2022, as well as its plan to return capital to shareholders.

So what

Booking $1.72 billion on the top line, TechnipFMC beat analysts' $1.4 billion revenue estimate for Q2 2022. The company's sales for the quarter represented a 2.9% gain over the same period last year. Toward the bottom of the income statement, though, is probably where investors were more likely inspired. The company reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $186.5 million, representing a 29.2% increase over the $144.3 million in adjusted EBITDA that it reported in Q2 2021.

Gaining a view of the promising things that lie ahead for the company also motivated investors to power their portfolios with the oil-field services stock. TechnipFMC reported a 23.6% year-over-year increase in its backlog, suggesting that the company's services are growing in demand -- a somewhat expected circumstance considering the recent rise in energy prices.

Besides the income statement, investor interest in the company's cash flow, or projected cash flow, drew attention. While TechnipFMC reported negative free cash flow of $133 million last quarter, management claimed that the company's free cash flow generation would be weighted toward the fourth quarter; consequently, management forecast 2022 free cash flow of $100 million to $250 million.

And while the company doesn't plan on initiating dividend payments until the second half of 2023, it did announce a plan to return capital to shareholders by way of its share repurchasing plan -- a plan that authorizes $400 million in share buybacks.

Now what

Although management emphasized its belief that free cash flow would be strong in the fourth quarter, it's worth noting that even if the company achieves the high end of its free cash flow guidance, it would still be notably shorter than the $523 million in free cash flow that it generated in 2021. Free cash flow isn't everything, but considering how so many energy companies have prospered in 2022, it's certainly something that prospective investors should monitor closely. Fortunately for investors interested in oil dividend stocks, there are plenty of options that represent lower degrees of risk to choose from.

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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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