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Flowserve (FLS) Displays Solid Prospects, Headwinds Persist

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Flowserve Corporation (FLS - Free Report) has been benefiting from strong bookings, solid backlog level and high backlog conversion capability. In the third quarter of 2021, the company's total bookings grew 13.1% year over year, driven by strong growth in both original equipment and aftermarket bookings. Also, exiting the third quarter, its backlog level remained robust at $1.97 billion. The implementation of additional Flowserve 2.0 initiatives is expected to enable the company to capture more margin enhancement opportunities with efficient cost management and higher productivity.

FLS’ healthy liquidity position adds to its strength. Exiting the third quarter, it had total available liquidity, consisting of cash and cash equivalents of $1,457.3 million and $708.6 million of available capacity under its revolving credit facility. Also, in the first nine months of 2021, it generated $117 million of free cash flow. It focuses on delivering free cash flow conversion in excess of 100% of its net income.

It remains committed to rewarding shareholders through dividend payments and share buybacks. For instance, in the first nine months of 2021, the company repurchased shares worth $17.5 million and paid out dividends worth $78.6 million.

However, Flowserve has been facing the adverse impacts of labor availability, logistics problems and supply-chain woes. The headwinds have deferred revenue generation of about $60 million and lowered gross profits by $20 million in the quarter. Also, the company’s realignment plan has been fuelling expenses and adversely impacting profitability. In the third-quarter, its net income was adversely impacted by realignment expenses of 2 cents per share.

Its high-debt profile also poses a concern. Exiting the third quarter, its long-term debt remained high at $1,272.2 million. Interest expenses in the quarter jumped 9.2% year over year to $14.7 million. Any further increase in debt levels can raise the company’s financial obligations.

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In the past three months, this Zacks Rank #3 (Hold) stock has lost 13.5% compared with the industry’s decline of 3.1%.

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Some better-ranked companies from the same space are discussed below.

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