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Flowserve (FLS) Displays Strong Prospects Despite Risks

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On Jun 17, we issued an updated research report on Flowserve Corporation (FLS - Free Report) .

In the past three months, this Zacks Rank #3 (Hold) stock has returned 37.5% compared with the industry’s growth of 26.8%.


Existing Business Scenario

Flowserve is poised to gain from its strong backlog level in the quarters ahead. Notably, exiting the first quarter of 2020, the company’s backlog stood at $2.18 billion, reflecting growth of 1.2% on a sequential basis. Also, going forward, its investments in enhancing organic growth and Flowserve 2.0, a multi-year transformation program, will likely benefit it.

Also, the company’s robust liquidity position allows it to cover its immediate liabilities. For instance, at the end of the first quarter of 2020, it had total available liquidity of more than $1.3 billion. Notably, this included cash and cash equivalents of about $622 million and around $721 million of available capacity under the company’s revolving credit facility. In addition, some of the company’s actions taken in response to the coronavirus crisis, including reduction of discretionary expenses and re-prioritization of its capital expenditure, will likely help it in maintaining a healthy margin performance.

However, the company’s weakness in both aftermarket and original equipment businesses, owing to the low demand environment in the oil and gas end markets, remains a major concern. Notably, it anticipates these headwinds to persist in the quarters ahead. Also, the company believes that challenging conditions at the chemical end markets amid the pandemic will affect its performance. It is worth mentioning here that it withdrew its guidance for 2020 on end-market uncertainties, owing to the pandemic.

In addition, high debt level remains concerning for the company. At the end of the first quarter of2020, its total debt-to-capital increased to 47.9% from 46.3% recorded at the end of the fourth quarter of 2019. Also, net interest and other expenses in the quarter grew 8.1% year over year to $13.4 million.

Stocks to Consider

Some better-ranked stocks from the Zacks Industrial Products sector are Intellicheck, Inc. (IDN - Free Report) , Energy Recovery, Inc. (ERII - Free Report) and Broadwind Energy Inc. (BWEN - Free Report) . All the companies currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Intellicheck delivered a positive earnings surprise of 70.24%, on average, in the trailing four quarters.

Energy Recovery delivered a positive earnings surprise of 66.67%, on average, in the trailing four quarters.

Broadwind delivered a positive earnings surprise of 50.00%, on average, in the trailing four quarters.

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