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Here's Why You Must Hold on to Flowserve (FLS) Stock Now
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We issued an updated research report on Flowserve Corporation (FLS - Free Report) on Aug 13.
Headquartered at Irving, TX, Flowserve is a leading manufacturer and aftermarket service provider of comprehensive flow control systems, globally.
Let’s delve deeper and discuss the company’s potential growth drivers and possible headwinds.
Factors Favoring Flowserve
Strengthening End Markets: Flowserve primarily serves customers in the oil and gas, chemical, power, and general industrial markets through its three reportable segments. Business in the oil and gas markets are anticipated to flourish on the back of rising upgrade and maintenance demand at refineries, expanding pre-FEED and FEED pipeline, and pickup in liquefied natural gas-related activities in North America. Additionally, improving demand in the chemical industry is spurring investments in ethylene and derivative facilities. In the power market, the company’s technical services are in demand, driven by strengthening thermal solar market while rise in mining investments and higher distribution activities, as a result of growth in the global economy, have increased growth prospects for the company in the general industries.
For 2018, Flowserve’s adjusted earnings per share are projected to be $1.50-$1.70, above $1.36 recorded in 2017. Revenues are predicted to increase 3-6%, better than 8% decline recorded in the previous year. Tax expenses will be lower as adjusted tax rate is predicted to be 27-28%, below 30% in 2017.
Realignment Program: Flowserve’s transformational realignment program is aimed at optimally utilizing manufacturing platform and reducing costs. These objectives can be achieved by improving on-time delivery, reducing backlog, enhancing sales process and further leveraging on the supplier relationships. In 2018, these initiatives are projected to yield cost-reduction benefits. In the long run, the company’s multi-year program — Flowserve 2.0 — is expected to enhance its ability to effectively support its customers and create a better workplace for its employees as well as drive significant long-term value for its shareholders. It’s worth mentioning here that the company, in an alignment of its restructuring initiatives, has agreed to divest some non-strategic assets, included in IPD, in the third quarter of 2018.
Sound Capital-Allocation Strategies: Flowserve maintains a balanced approach for investing money for the development of its distribution channels, product portfolio enhancement and returning value to its shareholders in forms of dividends and share buybacks. Notably, in the first half of 2018, the company has used approximately $49.7 million in cash for paying a dividend while aims at distributing $100 million dividend for the full year. Capital expenditure in the year is projected to be $80-$90 million.
In the past year, Flowserve's shares have gained 26.8%, outperforming 9.9% increase recorded by the industry.
Factors Working Against Flowserve
Adversities Arising From Rising Costs: Despite benefitting in the long run, Flowserve’s realignment plan has increased expenses in the near term. In the first half of 2018, costs associated with the company’s realignment program amounted to $25.2 million. It predicts transformation and realignment expenses to amount to $90 million in 2018. Moreover, businesses divested last year are estimated to have 1% sales headwind in 2018.
Highly Leveraged Balance Sheet: In the last five years (2013-2017), Flowserve’s long-term debt balance grew 5.9% (CAGR) while total debt/total equity ratio increased from 63.9% in 2013 to 94.3% in 2017. At the end of second-quarter 2018, the long-term debt was approximately $1.5 billion while its total debt/total equity was at 92.9%. We believe that fresh issuance in the quarters ahead is bound to increase this balance, which, in turn, can inflate the company’s financial obligations and prove detrimental to its profitability. In 2018, net interest expenses are predicted to be roughly $58-$60 million.
Other Headwinds: Flowserve’s business depends on capital investment and maintenance expenditure from customers, which, in turn, are impacted by numerous factors — including the state of domestic and global economies, global demand for energy, the cyclical nature of the markets, liquidity and condition of global credit, and capital markets. In addition, macroeconomic and political issues may pose as concerns for the company. Moreover, the company sells products in highly competitive markets, which sometimes puts pressure on profit margins and limits its ability to maintain or increase the market share of its products.
Some important players in the industry include Altra Industrial Motion Corp. , Colfax Corporation and DXP Enterprises, Inc. (DXPE - Free Report) .
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Here's Why You Must Hold on to Flowserve (FLS) Stock Now
We issued an updated research report on Flowserve Corporation (FLS - Free Report) on Aug 13.
Headquartered at Irving, TX, Flowserve is a leading manufacturer and aftermarket service provider of comprehensive flow control systems, globally.
Let’s delve deeper and discuss the company’s potential growth drivers and possible headwinds.
Factors Favoring Flowserve
Strengthening End Markets: Flowserve primarily serves customers in the oil and gas, chemical, power, and general industrial markets through its three reportable segments. Business in the oil and gas markets are anticipated to flourish on the back of rising upgrade and maintenance demand at refineries, expanding pre-FEED and FEED pipeline, and pickup in liquefied natural gas-related activities in North America. Additionally, improving demand in the chemical industry is spurring investments in ethylene and derivative facilities. In the power market, the company’s technical services are in demand, driven by strengthening thermal solar market while rise in mining investments and higher distribution activities, as a result of growth in the global economy, have increased growth prospects for the company in the general industries.
For 2018, Flowserve’s adjusted earnings per share are projected to be $1.50-$1.70, above $1.36 recorded in 2017. Revenues are predicted to increase 3-6%, better than 8% decline recorded in the previous year. Tax expenses will be lower as adjusted tax rate is predicted to be 27-28%, below 30% in 2017.
Realignment Program: Flowserve’s transformational realignment program is aimed at optimally utilizing manufacturing platform and reducing costs. These objectives can be achieved by improving on-time delivery, reducing backlog, enhancing sales process and further leveraging on the supplier relationships. In 2018, these initiatives are projected to yield cost-reduction benefits. In the long run, the company’s multi-year program — Flowserve 2.0 — is expected to enhance its ability to effectively support its customers and create a better workplace for its employees as well as drive significant long-term value for its shareholders. It’s worth mentioning here that the company, in an alignment of its restructuring initiatives, has agreed to divest some non-strategic assets, included in IPD, in the third quarter of 2018.
Sound Capital-Allocation Strategies: Flowserve maintains a balanced approach for investing money for the development of its distribution channels, product portfolio enhancement and returning value to its shareholders in forms of dividends and share buybacks. Notably, in the first half of 2018, the company has used approximately $49.7 million in cash for paying a dividend while aims at distributing $100 million dividend for the full year. Capital expenditure in the year is projected to be $80-$90 million.
In the past year, Flowserve's shares have gained 26.8%, outperforming 9.9% increase recorded by the industry.
Factors Working Against Flowserve
Adversities Arising From Rising Costs: Despite benefitting in the long run, Flowserve’s realignment plan has increased expenses in the near term. In the first half of 2018, costs associated with the company’s realignment program amounted to $25.2 million. It predicts transformation and realignment expenses to amount to $90 million in 2018. Moreover, businesses divested last year are estimated to have 1% sales headwind in 2018.
Highly Leveraged Balance Sheet: In the last five years (2013-2017), Flowserve’s long-term debt balance grew 5.9% (CAGR) while total debt/total equity ratio increased from 63.9% in 2013 to 94.3% in 2017. At the end of second-quarter 2018, the long-term debt was approximately $1.5 billion while its total debt/total equity was at 92.9%. We believe that fresh issuance in the quarters ahead is bound to increase this balance, which, in turn, can inflate the company’s financial obligations and prove detrimental to its profitability. In 2018, net interest expenses are predicted to be roughly $58-$60 million.
Other Headwinds: Flowserve’s business depends on capital investment and maintenance expenditure from customers, which, in turn, are impacted by numerous factors — including the state of domestic and global economies, global demand for energy, the cyclical nature of the markets, liquidity and condition of global credit, and capital markets. In addition, macroeconomic and political issues may pose as concerns for the company. Moreover, the company sells products in highly competitive markets, which sometimes puts pressure on profit margins and limits its ability to maintain or increase the market share of its products.
Some important players in the industry include Altra Industrial Motion Corp. , Colfax Corporation and DXP Enterprises, Inc. (DXPE - Free Report) .
Looking for Stocks With Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>