Forum Energy Technologies: A Tale of Two Metrics – Can Strong Backlog and Free Cash Flow Overcome Earnings Woes?

Forum Energy Technologies (FET) has long been a study in contrasts. On one hand, the company's Q2 2025 earnings report showcased a robust backlog of $263 million—the highest in over a decade—and a free cash flow of $23 million, with eight consecutive quarters of positive cash generation. On the other, its adjusted net loss of $0.10 per share and a Zacks Rank of #4 (Sell) paint a picture of a business struggling to meet earnings expectations. For investors, the question is whether FET's operational strengths can outweigh its financial shortcomings and justify renewed optimism.

The Backlog and Free Cash Flow: A Foundation for Growth

FET's Q2 results were anchored by a 1.32 book-to-bill ratio, driven by strong demand for offshore defense systems, coiled tubing, and remotely operated vehicles. The Drilling and Completions segment alone saw a 35% sequential jump in orders to $178 million, while the Artificial Lift and Downhole segment reported a 1.03 book-to-bill ratio. This backlog, combined with $168 million in cumulative free cash flow over the past eight quarters, has allowed FET to raise its full-year free cash flow guidance to $60–$80 million.

The company's capital return strategy is equally compelling. FET repurchased 579,000 shares for $11 million in July 2025 and plans to buy back an additional 10% of outstanding shares this year. CEO Neal Lux emphasized that these actions, alongside debt reduction, will drive net leverage down to 1.3x by year-end. With a free cash flow yield of ~30%, FET's shares appear undervalued relative to its cash-generating capabilities.

Earnings Shortfalls and a Bearish Zacks Rank

Despite these positives, FET's earnings performance remains a concern. The company reported a net loss of $0.10 per share in Q2 2025, missing the Zacks Consensus Estimate of a $0.15 loss. While this marked an improvement from a $0.07 loss in the prior-year period, FET has now missed EPS estimates in four consecutive quarters. The Zacks Rank of #4 (Sell) reflects a deteriorating trend in earnings estimate revisions, with analysts expecting only $1.10 in EPS for the full year on $774.43 million in revenue.

The disconnect between FET's operational metrics and its earnings outlook raises questions. For instance, the company's adjusted EBITDA guidance of $85 million for 2025 suggests strong profitability, yet this has not translated into improved earnings estimates. Part of the issue may lie in non-recurring items: a $7 million gain on a sale-leaseback and $4 million in foreign exchange gains were partially offset by restructuring costs. These one-time adjustments cloud the picture of FET's core business performance.

The Zacks Rank: A Cautionary Signal or a Misread?

The Zacks Rank system, which correlates earnings estimate revisions with stock price movements, currently favors a “Sell” rating for FET. This is based on a historical pattern of declining earnings expectations, even as revenue has occasionally exceeded forecasts. For example, FET's Q2 revenue of $200 million beat the Zacks Consensus by 4.88%, but this was offset by a year-over-year decline from $205.2 million.

However, the Zacks Rank may not fully account for FET's strategic shifts. The company's focus on defense-related projects—such as submarine rescue systems and ROVs—positions it to benefit from long-term secular trends in energy and national security spending. Additionally, FET's backlog provides a buffer against near-term industry volatility, with management confident in its ability to deliver $85 million in adjusted EBITDA despite expected declines in broader market activity.

Investment Implications: A Calculated Bet

For investors, FET presents a paradox. The company's free cash flow and backlog metrics suggest a resilient business with strong capital returns, while its earnings shortfalls and Zacks Rank signal caution. The key lies in assessing whether FET's operational strengths can outpace its financial weaknesses.

1. Long-Term Value vs. Short-Term Risks: FET's 30% free cash flow yield and aggressive share repurchase program make its shares attractive for long-term investors. However, the bearish Zacks Rank and earnings misses indicate near-term risks, particularly if industry activity declines more sharply than anticipated.
2. Capital Allocation Discipline: FET's use of free cash flow for debt reduction and buybacks is a positive, but investors should monitor whether these actions are sustainable if cash flow slows.
3. Industry Dynamics: The Oil and Gas - Mechanical and Equipment industry is in the top 41% of Zacks industries, which historically outperforms the bottom 50% by a 2:1 margin. FET's niche in defense-related projects could insulate it from broader sector headwinds.

Conclusion: A Tug-of-War Between Optimism and Caution

Forum Energy Technologies' Q2 2025 results highlight a company with strong operational momentum but a financial profile that remains under scrutiny. While the Zacks Rank of #4 (Sell) is a red flag, FET's backlog, free cash flow, and capital return strategy offer a compelling case for long-term investors. The challenge for the company—and its shareholders—is to balance the immediate earnings pressures with the long-term value of its backlog and strategic positioning.

For now, FET appears to be a stock for the patient and the bold. Those willing to look beyond quarterly earnings and focus on the company's capital efficiency and backlog strength may find an opportunity in its current valuation. However, investors should proceed with caution, keeping a close eye on how earnings estimates evolve in the coming quarters.