On Wednesday, Baird made an adjustment to its price target on shares of Flowserve Corp . (NYSE: FLS), increasing it to $66.00 from the previous target of $65.00. Despite this change, the firm has decided to maintain a Neutral rating on the stock.
The adjustment follows Flowserve's third-quarter performance, which was deemed to be generally in line with expectations after accounting for an asbestos charge. Baird pointed out several positive aspects that could influence the company's future performance. There is a noticeable increase in demand across the board, and the company has experienced a significant 13% organic growth in orders. Additionally, the backlog is expanding.
Moreover, Baird noted several factors that could potentially improve Flowserve's market position. These include the growing appeal of certain sectors such as power and 3D technologies, as well as the potential for margin improvement. The analyst suggested that long-term margin targets, which range between 14-16%, could see an upside thanks to the company's segmentation and 80/20 initiatives.
The firm also highlighted Flowserve's improving free cash flow (FCF) conversion and mentioned that the company's balance sheet might offer unappreciated optionality. While Baird's stance remains Neutral, indicating a more balanced risk/reward in the short term, the firm has expressed a more constructive outlook on Flowserve's prospects.
In other recent news, Flowserve Corporation (NYSE:FLS) has been the subject of analyst attention following its recent third-quarter earnings report. Goldman Sachs (NYSE:GS) maintained its Sell rating on Flowserve, citing a mixed performance in the company's results. The company reported adjusted earnings per share (EPS) of $0.62, falling short of the expected $0.67, primarily due to a discrete asbestos charge. However, the company displayed resilience in bookings, with a second consecutive quarter of $1.2 billion in bookings, including over $100 million in Nuclear awards.
Flowserve's recent acquisition of MOGAS Industries was also noted, though it is not included in the company's revenue growth forecast. The company reported revenue of $1.13 billion, matching analyst projections and marking a 3.5% year-over-year increase. Flowserve's full-year 2024 adjusted EPS guidance range was reaffirmed at $2.60 to $2.75, which is lower than the Wall Street consensus of $2.76.
Despite the earnings miss, Flowserve saw margin expansion, with adjusted gross margin rising 270 basis points year-over-year to 32.4% and adjusted operating margin increasing 240 basis points to 11.1%.
InvestingPro Insights
Building on Baird's analysis, recent data from InvestingPro offers additional context to Flowserve's financial position and market performance. The company's market capitalization stands at $7.11 billion, reflecting its substantial presence in the industrial machinery sector.
Flowserve's P/E ratio of 26.08 aligns with one of the InvestingPro Tips, which notes that the company is "Trading at a high P/E ratio relative to near-term earnings growth." This valuation metric suggests investors are pricing in future growth expectations, possibly based on the increased demand and order growth mentioned in Baird's report.
Another InvestingPro Tip highlights that Flowserve "Has maintained dividend payments for 18 consecutive years," which speaks to the company's financial stability and commitment to shareholder returns. This is particularly relevant given Baird's comments on improving free cash flow conversion and balance sheet optionality.
The company's strong recent performance is evident in the InvestingPro data, showing a 50.67% price total return over the past year. This substantial gain supports another InvestingPro Tip indicating a "High return over the last year," and may reflect the market's positive reception of Flowserve's strategic initiatives and improving market conditions.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide further insights into Flowserve's financial health and growth prospects.
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