Earnings Update Q1 2025; Medical Properties Trust $MPW and Forum Energy Technologies $FET

As the first trade deals start to roll in, the market is starting to get some greater visibility as to what the future will look like after Trump’s uncertainty gambit. To me it seemed like the goal was always pretty clear, 10% revenue generating tariffs on everyone except for our peer rival, China, and a reversal of the trade barriers that have existed since the end of World War 2.

I’m not sure if people are always this panicky, if the academic economic zeitgeist of free trade was too dominant, or if the financial news media was hyper partisan. But whatever the causes, the market selloff on the tariff uncertainty was much greater than I had anticipated, and the rebound is starting out just a sharply as that uncertainty gets lifted. Earnings this quarter won’t typically be as insightful, because most management teams are paralyzed and waiting to see what happens. All eyes are on Trump, which is how he likes things to be, unfortunately.

But we are still in the middle of a lot of macro trends that won’t stop for any president. Baby boomers are retired or retiring, artificial intelligence is revolutionizing services businesses, and we may or may not be in a commodity supercycle caused by years of underinvestment from the zero interest rate era.

Someday perhaps I will have to write an article about how boring things are, but today isn’t that day.

Forum Energy Technologies (FET)

With oil prices flirting with four year lows, Forum Energy Technologies anticipates that reduced rig counts will affect their own revenues with a six to nine month delay, if commodity prices don’t rebound beforehand. While consumables will be less affected than frac fleets, FET’s revenue is still correlated with rig count. Management is guiding toward a strong Q2 2025, but potentially a weak Q3 2025. In the meantime, FET is cutting costs, claiming to have taken $10 million annually out of SG&A, and confirms their original guidance of between $40 million and $60 million of free cash flow in 2025. Coming from a $181 million market capitalization company, that’s a free cash flow yield of between 22% and 33%.

That free cash flow is mostly from inventory reductions in an environment where FET will likely be at operational breakeven. With operational profitability so close to breakeven, and the potential for negative shocks, it’s not impossible to have a quarter of GAAP losses, which could drive the share price even lower. FET has a mostly domestic US supply chain for their domestic production, however, in anticipation of tariffs, suppliers are already raising prices. The price of domestic US steel has already gone up 30%, and this will affect FET’s input costs.

FET has one category that is heavily exposed to China, valves. Management says there has been a buyers strike since the tariff escalation with China started.

One area of interest for fellow RIG, VAL, and NE investors is that the subsea category is strong and growing, particularly in the products with the longest lead time. FET had increased revenues this quarter for subsea consumables, and guides for more growth going forward from their order book. FET’s orderbook is very near term, I believe like the engineering firms, approximately 75% is within twelve months. It’s not clear if subsea performance is due to taking market share, or if there is a genuine rebound in offshore activity, but the increased volume of longer lead time equipment is promising.

With leverage ratios surpassing management’s threshold for shareholder returns, last quarter FET started a share buyback program, and retired about 1% of the float outstanding for $2 million. The goal going forward is to use 50% of free cash flow to reduce net debt. That word net is always a funny thing, it probably means that the cash will be held, but at least money market rates are relatively high. Any future share buybacks would come from the other 50% of free cash flow, and that half includes the possibility of more acquisitions. But management did guide that their share price was too low, and they will “buy as many shares as possible within their returns framework.” Here’s hoping they don’t find any new acquisitions for the next twelve months and spend $20 million shrinking the float.

One final bit of new information. As shale oil fields become more gassy, the increased pressure at the well causes FET’s consumables to be needed more frequently. There have been plenty of authors saying that shale is going through puberty or becoming mature. I knew that they would need to buy razor blades more often as lateral well length increased. I did not expect that they would have to buy razor blades even more often than that due to the increased pressure from gassier wells. FET has a long growth runway ahead of it, especially when the tariff and OPEC uncertainty are behind us.

Medical Properties Trust (MPW)

The first rent has started coming in from the Steward bankruptcy hospitals. It starts at a 25% rate, and increases to the full 100% amount by October 2026. This creates a synthetically growing rent base for the next 18 months, this should do wonders for MPW’s share price. That $160 million of new rents comes out to about 6.5 cents per share per quarter. Funds from operations were 14 cents per quarter on this last earnings call. The newly refinanced debt cost shareholders about 2.5 cents per quarter, but this last quarter might not have seen the full impact from that. This means that FFO by October 2026 should be over 19 cents per share. But shareholders have become accustomed to an 8 cents per share dividend.

At a 10% yield, 19 cents per share of FFO would imply a share price of $7.60. Management has stock based compensation that does not vest until the share price stays over $7 per share for 20 days. At a current price of $5.20, it’s hard to think of a better place to park money for the next 18 months than MPW, even if it has been a very bumpy ride to get here.

In the era of zero interest rates, MPW traded at a yield of closer to 5%. I don’t believe that the low interest rate environment will come back, but MPW will probably at least reach a yield of 8%. That 19 cents of FFO at an 8% yield would imply a share price of $9.50.

Beyond that, the era of negative surprises is likely behind MPW, and an era of positive surprises should start to begin. The Prospect bankruptcy is much smoother and much friendly than Stewards. Those hospitals could either be sold or re-tenanted shortly. The stranded newbuild hospitals could find a new patron. And management has not announced the strategy for monetizing the owned equipment from the former Steward hospitals. Management could announce a return to growth, there was a small, $40 million, hospital acquisition this last quarter. The dividend restricting covenant is officially gone, so an announcement could come any quarter that the dividend is increasing from 8 cents to 10, 12, or even 14 cents. And rents still increase with inflation, which is a 2.8% increase being applied to tenants for this year.

Longer term, once MPW achieves a bit of stability, and if Scott Bessant achieves the low interest rate environment he wants in order to refinance the US debt, MPW could potentially refinance a couple billion dollars of debt. The 7.88% interest rate they received recently was punitive and unnecessary for such an asset-heavy business with good collateral. But at the same time, as legacy debt matures, it will have to be financed in this higher interest rate environment. It would be fantastic to see the 7.8% debt refinanced down to 6%, but over time it will be painful when the 3.5% debt matures and needs to be refinanced up to 6%.