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Flowserve (FLS) Discusses Long-Term Goals & Growth Strategies

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Flowserve Corporation FLS hosted Analyst Day on Dec 13. This machinery company discussed its growth strategies and provided long-term financial targets.

As noted, Flowserve serves customers in various end-markets — including chemical, oil & gas, power, water, and general industries. Strengthening demand in these markets — evident from growth in bookings in the third quarter of 2018 — adds to the company’s growth prospects. Furthermore, geographical diversification, especially in emerging markets, will be beneficial.

Another striking feature of Flowserve is its healthy aftermarket business opportunities in pumps, seals and valves. With a vast network of Quick Response Centers (QRCs), the company is able to cater to customer demand more effectively. The total addressable market for Flowserve is estimated at $145 billion.

In the long run, Flowserve’s multi-year transformation program, Flowserve 2.0, is expected to improve growth, drive operational excellence, create better workplace for its employees, effectively use global platforms and reduce complexity. Further, these initiatives will help the company to better serve its customers and create improved value for shareholders.

Reiteration of 2018 Targets, Segmental Restructuring

Flowserve maintained its financial target for 2018, discussed during the third quarter of 2018.  Adjusted earnings per share are anticipated to be $1.65-$1.75, reflecting year-over-year growth of 25% at the mid-point. Tax rates are predicted to be 27-28%, lower than 30% recorded in 2017. Capital expenditure will likely total $70-$80 million.

Revenues in 2018 are anticipated to grow by 5-7% year over year. Strengthening end-market demand will be a boon for the company in the months ahead.

In addition, Flowserve has communicated that it intends to bring together the operations of its Engineered Product Division and Industrial Product Division under one roof or segment — Flowserve Pumps Division. The changes, to be effective in 2019, will enable the company to better control its operations and serve its customers. Global pumps market is estimated to be worth $70 billion.

Long-Term Targets

For four years from 2019 to 2022, Flowserve anticipates revenue growth to be roughly 200 basis points above the industry’s growth rate. Operating margin is predicted to be 15-17% in 2022. Further, after-tax return on invested capital is projected to be 15-20% in 2022 while free cash flow will likely be more than 100% of net income.

Moreover, the company intends on following a disciplined capital-allocation strategy. Funds will be mainly invested in enhancing organic growth, Flowserve 2.0, acquisitions and returning higher values to shareholders.

Zacks Rank & Other Stocks to Consider

With a market capitalization of $5.7 billion, Flowserve currently carries a Zacks Rank #2 (Buy). We believe that the company is poised to gain from strengthening demand in end markets served, initiatives to improve operations, lower taxes and effective capital-allocation strategies.

Year to date, Flowserve’s shares have increased 3.2% against the industry’s 11.8% decline.

Moreover, earnings estimates on the stock for 2018 have been increased by 10 brokerage firms. Further, earnings estimates for 2019 were raised by seven firms and lowered by one. Currently, the Zacks Consensus Estimate for earnings stands at $1.74 for 2018 and $2.19 for 2019, reflecting growth of 2.4% and 3.3% from the respective 60-day-ago tallies.

Flowserve Corporation Price and Consensus

Flowserve Corporation Price and Consensus | Flowserve Corporation Quote

Some better-ranked stocks in the industry are DXP Enterprises, Inc. DXPE, EnPro Industries, Inc. NPO and Luxfer Holdings PLC LXFR. All these stocks currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for all these three stocks have improved for the current year. Further, positive earnings surprise for the last quarter was 17.95% for DXP Enterprises, 23.64% for EnPro Industries and 60.61% for Luxfer.

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