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Here's Why Investors Should Ignore Flowserve (FLS) for Now

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Flowserve Corporation FLS seems to have lost its sheen to uncertainties related to the coronavirus outbreak. Also, lowered earnings estimates and weak price performance add to the concerns.

The Irving, TX-based company has a market capitalization of $3.2 billion and a Zacks Rank #5 (Strong Sell) at present. It belongs to the Zacks Manufacturing – General Industrial industry, which comes under the ambit of the Zacks Industrial Products sector. The industry is currently at the bottom 17% (with the rank of 209) of more than 250 Zacks industries.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We believe that the industry is suffering from the adverse impacts of cost escalation, induced by freight charges, tariff woes and high labor costs. Also, global uncertainties, unfavorable movements in foreign currencies and the adverse impacts of the coronavirus outbreak add to the woes.

In the last reported quarter, the company’s earnings of 66 cents and revenues of $1,068.2 million surpassed estimates by 1.5% and 1.9%, respectively.

In the past three months, Flowserve’s shares have fallen 50% compared with the industry’s decline of 22.3%.





Factors Affecting Investment Appeal

Coronavirus-Related Worries: The company’s operations have been adversely impacted by temporary shutdowns of many quick response centers, manufacturing facilities, engineering centers and others due to the pandemic.

For now, Flowserve has withdrawn its previously provided projections for 2020. Earlier, adjusted earnings per share were expected to be $2.30-$2.45 per share for 2020, suggesting growth of 8% from the year-ago reported figure. Revenues were expected to increase 3-5% year over year.

Realignment Expenses: The company’s realignment expenses adversely impacted its net income by $3.1 million or 2 cents per share in the fourth quarter of 2019. The realignment measures, though are anticipated to benefit in the long run, are adding to its expenses.

High Debts & Forex Woes: A highly leveraged balance sheet might increase financial obligations and hurt the profitability of the company. Flowserve’s debts increased 1.2% sequentially to $1,366 million at the end of fourth-quarter 2019. Also, interest and other expenses (net) were $12.8 million in the quarter, reflecting a year-over-year increase of 4.2%.

Additionally, its international presence has exposed it to geopolitical issues, macroeconomic challenges and unfavorable movements in foreign currencies. Forex woes had adverse impacts of 1.1% in the fourth quarter of 2020.

Bottom-Line Estimate Trend: In the past 60 days, six downward revisions in the Zacks Consensus Estimate for Flowserve’s earnings have been recorded for 2020, while five have been witnessed for 2021. Presently, earnings estimates are pegged at $1.76 for 2020 and $1.62 for 2021, suggesting declines of 26.7% and 40% from the respective 60-day-ago figures.

Flowserve Corporation Price and Consensus

 

Flowserve Corporation Price and Consensus

Flowserve Corporation price-consensus-chart | Flowserve Corporation Quote

Also, earnings estimates of 41 cents per share for third-quarter 2020 (results are awaited) and 40 cents for fourth-quarter 2020 reflect declines of 8.9% and 27.3% from the respective 60-day-ago figures.

Flowserve’s Performance Versus Industry Peers

The company has underperformed three industry peers in the past three months. Three such stocks are Graco Inc. GGG, IDEX Corporation IEX and Kadant Inc. KAI, with respective three-month declines of 11.1%, 12.7% and 31.3%.

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