Flowserve Gains From End-Market Prospects Despite High Costs
Zacks Investment Research | Mar 04, 2019 07:11AM ET
We have issued an updated research report on Flowserve Corporation (NYSE:FLS) on Mar 4.
The company, with a market capitalization of $6.1 billion, currently carries a Zacks Rank #3 (Hold).
Certain growth drivers and headwinds that might influence Flowserve have been discussed below.
Factors Favoring Flowserve
End Market Prospects: Flowserve anticipates gaining from rising MRO spending across the globe due to an increased focus on maintenance and efficiency in the oil and gas market. Also, higher demand for cleaner fuels and pickup in liquefied natural gas-related activities in North America will be beneficial.
In addition, the company will gain from improving demand, spurring investments in ethylene and derivative facilities in the chemical market. Also, business in North America, the Middle East and some emerging markets are likely to flourish. Further, the company will gain from the increasing need for technical services driven by the strengthening thermal solar market. In the general industries, higher distribution and mining activities induced by growing global economy increased growth prospects for the company.
Projections for 2019 & Shareholder-Friendly Policy: For 2019, Flowserve anticipates adjusted earnings per share of $1.95-$2.15, higher than $1.75 recorded in 2018. Revenues are predicted to grow 4-6%. Further, in the year, the company intends to pay $100 million in dividends to shareholders and use $90-$100 million in cash for capital expenditure.
Long-Term Targets: From 2019 till 2022, Flowserve anticipates revenue growth of roughly 200 basis points above the industry’s growth rate. Operating margin is predicted to be 15-17% in 2022 while after-tax return on invested capital is likely to be 15-20% and free cash flow is expected to be above 100% of net income. In addition, the company intends on using its funds for enhancing organic growth, investing in Flowserve 2.0, acquisitions and returning higher values to shareholders.
It is worth noting here that Flowserve 2.0 is a multiyear program that is designed to enhance the company’s ability to effectively support customers and create a better workplace for employees. It will also help drive significant long-term value for Flowserve’s shareholders.
Factors Working Against Flowserve
Share Price Performances, Poor Valuation and Earnings ESP: Flowserve delivered earnings surprise of 0% and a negative sales surprise of 7.68% in the fourth quarter of 2018. The company’s share price declined 5.8% following the release of results on Feb 20, 2019. This performance was weaker than the Zacks Investment Research
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