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Here’s Why It’s Worth Investing in Flowserve (FLS) Stock Now


Machinery companies are poised to gain from expanding industrial production, rising demand for machinery made in the United States and expanding global economy. Additionally, growth in infrastructural developments, policy changes like the Tax Cut and Jobs Act implemented in December last year, and healthy job market will be favorable.

In such favorable operating environment, it is advisable for investors — who are seeking exposure in the machinery space — to choose stocks that currently sport a Zacks Rank #1 (Strong Buy) or #2 (Buy). Of the many investment options, we believe Flowserve Corporation FLS to be a smart choice. The stock currently carries a Zacks Rank #2 and has a favorable VGM Score of B.

Flowserve belongs to the machinery sub-industry, which has companies that primarily work for general industries. This industry is positioned in the top 36% of more than 250 Zacks industries. Per our research, the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Below we discussed why Flowserve is currently a worthy investment option.

Share Price and Earnings Performances, Robust Bottom-Line Outlook: Market sentiments seem to be favoring Flowserve lately. Year to date, the company’s share price has yielded 9.2% return against 9.6% decline recorded by the industry.

In the last reported quarter, Flowserve’s earnings were 49 cents per share, surpassing the Zacks Consensus Estimate by 16.67%. Further, the bottom line surged 32.4% year over year, mainly on the back of solid sales growth.

In the quarters ahead, Flowserve anticipates gaining from healthy demand in end-markets served, its realignment initiatives and lower tax rates. For 2018, the company now anticipates adjusted earnings per share of $1.65-$1.75, up from previously mentioned $1.50-$1.70. Moreover, the revised projection (at mid-point) reflects year-over-year growth of 25%. Tax rates are predicted to be 27-28%, lower than 30% recorded in 2017.

Earnings estimates provided by the brokerage firms have been revised upward, reflecting positive sentiments toward the company. In the past 60 days, earnings estimates for 2018 has been raised by 10 brokerage firms while that for 2019 have been raised by seven 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. Further, these estimates represent year-over-year growth of 27.9% for 2018 and 25.9% for 2019.

MSA Safety Incorporporated Price and Consensus

MSA Safety Incorporporated Price and Consensus | MSA Safety Incorporporated Quote

Revenues — Segmental Business Strong: Flowserve’s revenues in the third quarter of 2018 expanded 7.8% year over year on the back of healthy results of its three segments — Engineered Product Division, Industrial Product Division and Flow Control Division.

Strengthening end-market demand will be a boon for Flowserve in the quarters ahead. In the oil and gas market, the company gains from expanding pre-FEED and FEED pipeline, pickup in liquefied natural gas-related activities in North America, and increasing maintenance and upgrade in demand at refineries.

In the chemical market, improving demand, spurring investments in ethylene and derivative facilities, will be beneficial. Impressive growth is anticipated in North America, the Middle East and Asia businesses. In the power market, the strengthening of the thermal solar market increased the need for the company’s technical services while higher distribution activities induced by growing global economy increased Flowserve’s growth prospects in the general industries.

For 2018, the company predicts revenues to grow by 5-7%, higher than 3-6% mentioned earlier.

The Zacks Consensus Estimate for revenues for Flowserve is pegged at $3.91 billion for 2018 and $4.12 billion for 2019, reflecting year-over-year growth of 7% and 5.3%, respectively.

Capital-Allocation Strategies: Flowserve uses its capital for product development, capacity expansion and rewarding shareholders handsomely. In the first nine months of 2018, the company paid dividends, totaling $74.5 million, to its shareholders. It anticipates paying $100 million in total as dividends in 2018. However, it did not purchase any shares in the first nine months. The company has $160.7 million authorization remaining under its $500-million program authorized in November 2014.

In addition to this, the company’s capital expenditure in the first nine months was $50 million. For 2018, capital spending is likely to amount $70-$80 million.

Tactical Initiatives: Flowserve anticipates reducing backlog, improving on-time delivery, leveraging supplier relationships and enhancing sales process through its transformational realignment program. The program is anticipated to yield cost savings in 2018. Moreover, the company is following a multiyear program — Flowserve 2.0 — to create better workplace for its employees, effectively support its customers and drive significant long-term value for its shareholders.

Other Stocks to Consider

Some other top-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. 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 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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