Will Flowserve (FLS) Miss Earnings Again This Season? - Analyst Blog
Flowserve Corp. FLS is slated to report second-quarter 2015 results on Jul 22 after the closing bell. In the last reported quarter, the company’s quarterly earnings missed the Zacks Consensus Estimate by 17.1%. Also, in the trailing four quarters, the stock posted an average negative surprise of almost 6%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Despite Flowserve’s commendable “One Flowserve” culture that focuses on top-line growth through disciplined strategic prioritization, volatile macroeconomic environment continues to plague the company’s growth. Certain unfavorable global conditions, namely strengthening of the U.S. dollar and volatility in oil & gas markets, were mainly responsible for dampening the company’s financial results in the first quarter; and these factors continue to threaten its second-quarter results as well.
One of the primary concerns of Flowserve is that around two-third of its revenues are derived from overseas operations, and this exposes it to adversities like decline in capital spending and reduced activity in oil & gas markets. Flowserve’s customers have been compelled to reduce capital investment and maintenance expenditure, as well as postpone projects due to uncertainty in global energy demand; which, in turn, hurts its profitability. Moreover, the company anticipates currency headwinds to affect its financial performance in the to-be reported quarter.
Additionally, matters such as unexpected strike of workers and lower-than-appropriate plant maintenance activities on part of operators hampered Flowserve’s financial performance in the prior quarter. Given the current global economic scenario, such activities will likely weigh on the company’s profitability in the to-be reported quarter as well.
In order to tide over the situation, Flowserve has been diligently expanding its offerings so as to broaden the customer base. The company introduced a host of seals and pumps at the world renowned ACHEMA industry forum for maximizing the visibility of its products. Encouragingly, demand for ISO 2858 and ISO 5199 pumps has been on a rise, fuelled mainly by needs of large chemical companies and refineries.
Earnings Whispers
Our proven model does not conclusively show that Flowserve will beat earnings this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.
Zacks ESP: Flowserve currently has a negative Earnings ESP. This is because, while the Most Accurate estimate stands at 80 cents, the Zacks Consensus Estimate is pegged lower at 77 cents. This equates to a difference of -3.75%.
Zacks Rank: Flowserve’s Zacks Rank #4 (Sell), when combined with negative Earnings ESP, makes an earnings beat difficult. As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Colfax Corporation CFX, an Earnings ESP of + 2.08% and a Zacks Rank #3.
Fair Isaac Corporation FICO, an Earnings ESP of +12.50% and a Zacks Rank #2.
Chart Industries Inc. GTLS, Earnings ESP of +10.87% and a Zacks Rank #3.
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FLOWSERVE CORP (FLS): Free Stock Analysis Report
FAIR ISAAC INC (FICO): Free Stock Analysis Report
CHART INDUSTRIE (GTLS): Free Stock Analysis Report
COLFAX CORP (CFX): Free Stock Analysis Report
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