The Zacks Analyst Blog Highlights: Berkshire Hathaway, FMC Technologies, Exxon Mobil, Natural Gas Services Group and PowerSecure International

Zacks

For Immediate Release

Chicago, IL – May 20, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Berkshire Hathaway Inc. (BRK.B), FMC Technologies Inc. (FTI), Exxon Mobil Corporation (XOM), Natural Gas Services Group Inc. (NGS) and PowerSecure International Inc. (POWR).

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Here are highlights from Friday’s Analyst Blog:

S&P Cuts Berkshire Rating a Notch

Just a day after getting its key rating affirmed from A.M. Best Co., Standard and Poor Rating Services (S&P) surprised investors by making a reverse rating action on Berkshire Hathaway Inc. (BRK.B).

 

S&P seemed bothered by Berkshire’s undue reliance for dividend income on its insurance business. On the back of this concern, the ratings agency slashed its investment-grade counterparty credit rating for Berkshire and its debt rating by one notch to "AA" from "AA+." The rating agency, however, left unchanged the “AA+" ratings of Berkshire's insurance subsidiaries.

According to S&P, heavy equity investments made by Berkshire's insurance subsidiaries such as Geico and General Re exposes heavy equity investments made by those insurance subsidiaries and exposes them to greater risk than their peers.

This move by S&P comes after it has changed its criteria of rating the insurance companies. A key factor now for the rating agency to evaluate an insurer is its dependence on dividend income and the magnitude of its investment in equity shares.

Another major concern with S&P is the succession issue of Warren Buffett, who is at present both the Chief Investment Officer and also the Chairman of the company.

Though Buffett has done his homework and has already finalized candidates who will take up senior positions which will fall vacant upon his resignation, details have been kept under wraps. The investment community and other stakeholders have no knowledge of who the successor will be. This has allowed room for considerable uncertainty for quite some time now.

The outlook for the ratings remains negative, which implies that there is room for further adverse rating action over the near-to-medium term.

Prior to this Berkshire suffered rating cut in Feb 2010 when S&P slashed its AAA rating on the insurer.

FMC Tech, Exxon Join Forces

Maker of oil drilling equipment, FMC Technologies Inc. (FTI) inked a deal with Exxon Mobil Corporation (XOM), the world’s largest publicly traded oil company.

Per the contract, FMC Technologies will provide six subsea trees, a manifold and related tie-in tool for the development of the Julia oil field. The oil field is based at a water depth of roughly 7,000 feet in the Gulf of Mexico.

FMC Technologies, a leading manufacturer and supplier of technology solutions for the energy industry, conducts its operations in three segments: Subsea Technologies, Surface Technologies and Energy Infrastructure. As of Mar 31, 2013, FMC Technologies’ total order backlog (including intercompany eliminations) was $5,426.8 million compared with $5,599.2 million a year ago. Of this, backlog for Subsea Technologies, Surface Technologies and Energy Infrastructure at the end of the quarter was $4,621.6 million, $522.3 million and $291.9 million, respectively.

Houston, Texas-based FMC Technologies operates 30 manufacturing facilities in 16 countries. The company is engaged in the designing, producing and servicing of technologically-sophisticated systems and products such as subsea production and processing systems, surface wellhead production systems, high pressure fluid control equipment, measurement solutions, and marine loading systems for the oil and gas industry.

FMC Technologies is particularly well positioned in the subsea systems market. It is the company’s largest and fastest growing business, accounting for about two-thirds of revenues. Subsea products have seen an increase in interest, and we expect earnings in this segment to strengthen – especially due to FMC Technologies’ leading position in subsea production systems, including subsea trees, controls and manifold and tie-in systems.

However, as is the case with other oil services and equipment suppliers, results for FMC Technologies are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. A potential drop in prices could curtail deepwater drilling and subsea equipment demand, thereby affecting the company’s revenues, earnings and cash flow.
FMC Technologies currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider oil field machinery and equipment suppliers like Natural Gas Services Group Inc. (NGS) and PowerSecure International Inc. (POWR) as attractive investments in the near term. The firms currently sport a Zacks Rank #2 (Buy) and are expected to outperform the broader U.S. equity market over the next one to three months.

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Read the analyst report on BRK.B

Read the analyst report on FTI

Read the analyst report on XOM

Read the analyst report on NGS

Read the analyst report on POWR

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