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Flowserve Down 59% YTD on Coronavirus & Other Global Woes

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Shares of Flowserve Corporation FLS have plunged sharply since the beginning of 2020. We believe that the price decline reflects investors’ concerns about the possible impacts of the coronavirus outbreak on the company’s operations as well as uncertain global economic conditions.

The Irving, TX-based company belongs to the Zacks Manufacturing – General Industrial industry, which, in turn, comes under the ambit of the Zacks Industrial Products sector. The industry is currently at the bottom 38% (with the rank of 157) of more than 250 Zacks industries.

Year to date, the company’s shares have dipped 59% compared with the industry’s decline of 36.1% and the sector’s fall of 36.6%. Notably, the S&P 500 has declined 28.2% during the same period.

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors Affecting the Stock

So far in 2020, Flowserve has reported better-than-expected results for fourth-quarter 2019. Earnings in the quarter surpassed estimates by 1.5%, while sales beat the same by 1.9%. On a year-over-year basis, earnings grew 13.8%, backed by progress on the Flowserve 2.0 transformation strategy and improved operating leverage.

For 2020, the company anticipates revenues growth of 3-5% year over year and adjusted earnings per share of $2.30-$2.45. Despite the impressive results and promising projections, a sharp decline in Flowserve’s share price reflects concerns related to geopolitical and macroeconomic issues.

Also, the nervousness caused by the coronavirus outbreak seems to be a major spoilsport. Concurrent with its fourth-quarter results, the company communicated that the pandemic might hurt its supplier network and manufacturing capabilities in China. In turn, the situation might defer some revenue generation in the first half of 2020.

As noted, Flowserve operates a manufacturing complex in Suzhou and has as many as 780 associates in China. Also, it has administrative and sales offices, multiple Quick Response Centers (QRCs), and a huge supplier network in the country. The company believes that prolonged shutdown in the country might adversely impact its supplier deliveries in the near term.

In addition to the above-mentioned headwinds, Flowserve believes that geopolitical environment, large supply and the coronavirus outbreak might slow down projects in its oil & gas end market.

Currently, the Zacks Consensus Estimate for the company’s earnings is pegged at $2.32 for 2020 and $2.58 for 2021, marking declines of 5.7% and 4.1% from the respective 60-day-ago figures. Notably, there were six and two downward revisions in estimates for 2020 and 2021, respectively. While there were no upward revisions for 2020, one positive revision was recorded for 2021.

Flowserve Corporation Price and Consensus


Flowserve Corporation Price and Consensus

Flowserve Corporation price-consensus-chart | Flowserve Corporation Quote

Such a trend in earnings estimates is reflective of bearish sentiments for the company.

Flowserve’s Performance Versus Three Industry Players

The company has underperformed three industry players so far in 2020. Three such stocks are Kaman Corporation KAMN, Nordson Corporation NDSN and Tennant Company TNC, with respective year-to-date declines of 49.6%, 34.2% and 34%.

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