Forum Energy Technology Shares Rise As Restructuring Progresses

Thinly traded oil drilling gear maker Forum Energy Technologies NYSE: FET is up 40% since reporting first-quarter results on May 6. 

This is not one of those companies crushing it with earnings and revenue growth. Instead, Forum reported a quarterly loss of $3.95 per share on revenue of $114.5 million, down 37% from a year ago.

So what gives with the price rise? 

The key lies in the company’s restructuring plans. 

Last year, Forum said it was collaborating with its debtholders to restructure its obligations. If that could not be successfully accomplished, the alternative may have been bankruptcy.

Debt levels have been decreasing in recent years. 

Special items in the first quarter $3 million in restructuring and other charges, and a $1 million loss on extinguishment of debt, both on a pre-tax basis. 

In the earnings release, CEO Cris Gaut said restructuring efforts were proceeding well. 

“Our efforts to improve our capital structure continue as we ended the first quarter 2021 with $300 million principal amount of debt outstanding and net debt of $199 million, a $137 million decrease over the last 12 months,” he said. 

He also noted that first-quarter financial activity exceeded the company’s expectations. 

Making Progress With Restructuring 

“Our portfolio restructuring efforts contributed meaningfully to our results. FET revenue increased sequentially by approximately $10 million, or 10%, and EBITDA increased by $7 million, both pro forma for the fourth quarter 2020 divestiture,” Gout said.

The company issued second-quarter guidance, forecasting revenue between $125 and $135 million and EBITDA between $6 and $8 million.

The low end of that revenue guidance would mark a year-over-year gain of 11.7%.

“Based on the order flow we are receiving, we expect further revenue and EBITDA improvement in the second half 2021,” said Gaut. 

Forum Energy makes technologies for drilling and what’s known as “downhole” production. Its gear also includes undersea vehicles, cooling systems, pressure controls, and many other pieces of equipment needed in various energy production situations. 

The company was formed in 2010 through a merger of five different oil-services technology firms. It went public in 2012. 

The share price steadily declined for years. However, since April 2020, it’s forming its most sustained rally to date. 

Analysts still expect yearly losses this year and next, although those losses are expected to narrow. 

Despite the post-earnings price increase, analysts continue to hold a dim view of the stock. Because the stock is so small, with a market capitalization of just $151.4 million, there is scant analyst coverage. 

Low Daily Trading Volume

Technically, the stock has some attractive qualities. It cleared a buy point above $24.93 in heavy volume on May 27. 

However, it trades in an erratic fashion, as you might expect from a stock with such a small market cap. It has only 4.1 million shares floated, and daily trading volume of 52,500. 

Its beta is 2.43, an indication of a highly volatile stock.

Although Forum Energy Technology is currently a strong technical performer, that volatility makes it not the best choice for gaining exposure to the oil-and-gas equipment industry.

For example, Chart Industries NASDAQ: GTLS is a midcap stock that’s been a strong performer. It’s stumbled over the past month, along with other companies in the industry, but analysts are eyeing earnings growth in the next two years. 

For a large-cap stock that tends to trade in a more stable manner, look to S&P 500 component Baker Hughes NYSE: BKR. On May 17, this stock broke out of a cup-shaped pattern, with a buy point above $25.64, in lower-than-normal volume.

However, the breakout was confirmed this week with a gap up on June 1 and a heavy-volume confirmation on June 2, as the stock added to its gains. 

It currently pays a dividend of $0.72 per share, for a dividend yield of 2.74%.