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Flowserve (FLS) Displays Solid Prospects Amid Pandemic Scare

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On Nov 10, we issued an updated research report on Flowserve Corporation (FLS - Free Report) .

In the past month, this Zacks Rank #3 (Hold) stock has returned 10.5% compared with the industry’s growth of 7.5%.

Present Scenario

Flowserve is poised to benefit from healthy backlog level, strong backlog conversion capability and its multi-year Flowserve 2.0 strategy in 2020. Notably, the company had a backlog of $2 billion exiting the third quarter of 2020. Going forward, it expects to gain from implementation of its additional Flowserve 2.0 initiatives, which would enable it to capture more margin enhancement opportunities with efficient cost management and higher productivity.

Also, the company’s robust liquidity position allows it deal with the difficulties caused by the coronavirus outbreak. Exiting the third quarter, Flowserve had total available liquidity of $1.7 billion, consisting of cash and cash equivalents balance of $921 million, and $750 million of available capacity under its revolving credit facility.

Moreover, the company remains committed to rewarding shareholders handsomely through dividend payments. In 2020, it expects to pay out dividends worth $100 million. In addition, the execution of several cost control measures is likely to help it maintain a healthy margin amid the crisis. For 2020, the company expects to achieve cost savings of $100 million.

However, in third quarter, the company’s bookings were down 21.2% on a year-over-year basis on account of weakness in both aftermarket and original equipment businesses. The company remains wary about the pandemic-related woes for the upcoming quarters. It expects bookings in the fourth quarter of 2020 and first quarter of 2021 to be in line with that of the previous two quarters.

Further, the company’s high-debt profile poses a concern. Exiting the third quarter, its long-term debt was $1,701.1 million, up 24.4% on a sequential basis. Also, interest expenses in the quarter increased 5% to $14.7 million. Further, an increase in debt levels can raise the company’s financial obligations.

Key Picks

Some better-ranked stocks from the same space are Altra Industrial Motion Corp. (AIMC - Free Report) , Applied Industrial Technologies, Inc. (AIT - Free Report) and Graco Inc. (GGG - Free Report) . While Altra Industrial sports a Zacks Rank #1 (Strong Buy), Applied Industrial and Graco carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial delivered a positive earnings surprise of 50.07%, on average, in the trailing four quarters.

Applied Industrial delivered a positive earnings surprise of 14.68%, on average, in the trailing four quarters.

Graco delivered a positive earnings surprise of 21.74%, on average, in the trailing four quarters.

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