Here's Why Flowserve (FLS) Should Grace Your Portfolio Now
Flowserve Corporation FLS is thriving on the back of strong maintenance, repair and operations (MRO) and aftermarket activity. The company’s healthy margin performance owing to solid operational execution, pricing actions and improving supply chains is encouraging.
Let’s delve deeper to unearth the factors that make investing in this Zacks Rank #1 (Strong Buy) company a smart choice now.
Record Booking Levels: Record levels of booking due to strong MRO and aftermarket activity are driving Flowserve's growth. The company’s second-quarter bookings of $1.1 billion marked the sixth consecutive quarter of more than $1 billion bookings. Solid booking levels highlight the strength across the company’s end markets. In the second quarter, bookings increased 20% and 12% in general industries and oil and gas markets, respectively. The same increased in the 2-3% range in power and water.
Flowserve expects the uptrend in bookings to continue through 2024, driven by strong MRO and aftermarket activity levels. Solid operational execution, pricing actions and improving supply chains are aiding the company’s margins. In the first six months of 2023, gross margin increased to 30% from 27% in the year-ago period. On a further positive note, FLS expects to achieve run-rate cost savings of $50 million by the end of this year. Cost-control actions are expected to drive the company’s bottom line.
Improved Guidance: Following strong second-quarter performance, Flowserve raised its 2023 guidance. The company expects revenues to increase 16-18% year over year in 2023 compared with a 10-12% rise anticipated earlier. Adjusted earnings are estimated to be between $1.85 and $2.00 compared with $1.65-$1.85 anticipated earlier.
Expansion Initiatives: Flowserve focuses on acquiring businesses/assets to expand its product offerings. In February 2023, the company inked a deal to acquire Velan Inc. in an all-cash transaction valued at approximately $245 million. The buyout will strengthen Flowserve’s valves portfolio and build upon its existing assets through the addition of Velan’s premier brands, strong heritage and technical expertise in diverse end markets. The deal is expected to be completed by the end of the third quarter of 2023.
Velan will become part of Flowserve’s Flow Control Division segment. The company expects to achieve annualized cost synergies of at least $20 million from the acquisition by the end of the first year. The transaction is expected to be accretive to Flowserve’s adjusted earnings in the first year.
Rewards to Shareholders: Flowserve is committed to rewarding its shareholders handsomely. In the first half of 2023, the company paid dividends of $52.5 million. In 2022, the company paid out dividends worth $104.5 million to its shareholders.
Price Performance: Shares of Flowserve have outperformed its industry in the year-to-date period primarily due to strong booking levels. The stock has gained 22.6% in the period compared with the industry’s rise of 9.1%.
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Northbound Estimate Revisions: The Zacks Consensus Estimate for Flowserve’s 2023 earnings has been revised upward by 8.8% in the past 60 days.
Other Stocks to Consider
Some other top-ranked stocks within the Industrial Products sector are as follows:
A. O. Smith Corporation AOS presently carries a Zacks Rank #2 (Buy). The company pulled off a trailing four-quarter earnings surprise of 10.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.
A. O. Smith has an estimated earnings growth rate of 13.7% for the current year. The stock has rallied 21.8% in the year-to-date period.
Eaton Corporation plc ETN currently carries a Zacks Rank #2. The company delivered a trailing four-quarter earnings surprise of approximately 3%, on average.
Eaton has an estimated earnings growth rate of 16.3% for the current year. The stock has soared 36.6% in the year-to-date period.
Enersys ENS presently carries a Zacks Rank #2. The company delivered a trailing four-quarter earnings surprise of 10.3%, on average.
Enersys has an estimated earnings growth rate of 45.7% for the current fiscal year (ending March 2024). The stock has gained 32.1% in the year-to-date period.
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