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Here's Why You Should Avoid Flowserve (FLS) Stock for Now
Flowserve Corporation (FLS - Free Report) is struggling with supply-chain constraints, rising raw material costs and foreign-currency headwinds, which are likely to adversely impact its earnings.
The Zacks Rank #5 (Strong Sell) player has a market capitalization of $3.8 billion.
Factors Affecting Flowserve
Flowserve’s engineered project business is experiencing persistent softness due to inflationary pressures, supply-chain challenges and logistic problems. The company’s cost of sales rose 2.1% year over year, and selling, general and administrative expenses increased 2% in the first nine months of 2022. Also, the potential recessionary environment is expected to weaken FLS’ GDP-driven markets, including chemicals and general industries.
The company’s high debt level raises a concern. Flowserve’s long-term debt remained high at $1,232.2 million at the end of third-quarter 2022. Fresh issuances of debt instruments in the quarters ahead might inflate the company’s financial obligations and hurt profitability.
Though Flowserve’s realignment plans are expected to provide benefits in the long run, the same is fuelling its expenses and adversely impacting its profitability. FLS’ net income might be affected by realignment expenses in the near term. The bottom line might also be hurt by incremental expenses.
Due to its significant presence in the international markets, Flowserve is exposed to unfavorable foreign currency movement. In third-quarter 2022, foreign exchange headwinds adversely impacted its sales by $1.1 million. A stronger U.S. dollar might depress its overseas business's results in the quarters ahead.
The negativity surrounding the stock is evident from the Zacks Consensus Estimate for 2022 earnings being revised downward by 33.1% in the past 60 days.
Image Source: Zacks Investment Research
Due to the above-mentioned woes, the stock has lost 4.8% compared with the industry’s 16.8% decline in the year-to-date period.
Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
Applied Industrial Technologies, Inc. (AIT - Free Report) presently sports a Zacks Rank #1 (Strong Buy) and a trailing four-quarter earnings surprise of 24.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.
AIT’s earnings estimates have increased 4.6% for fiscal 2023 in the past 60 days. Shares of Applied Industrial have risen 20.1% in the year-to-date period.
Deere & Company (DE - Free Report) presently has a Zacks Rank of 2 (Buy). DE’s earnings surprise in the last four quarters was 7.1%, on average.
In the past 60 days, DE’s earnings estimates have increased 4.8% for 2022. The stock has rallied 25.7% in the year-to-date period.
Titan International, Inc. (TWI - Free Report) presently carries a Zacks Rank of 2. Its earnings surprise in the last four quarters was 49.6%, on average.
In the past 60 days, TWI’s earnings estimates have increased 1.4% for 2022. The stock has gained 40.8% in the year-to-date period.