Flowserve Corporation FLS is experiencing strong momentum in the Flowserve Pump Division and Flow Control Division segments. Strength in the aftermarket and original equipment businesses, driven by an increase in demand for products and services in North America, Europe Middle East and Latin America, is a prime catalyst for the Flowserve Pump Division segment’s growth (revenues were up 6.1% year over year in the second quarter).
An increase in original equipment sales in the Middle East, North America, Asia Pacific and Europe regions is supporting the Flow Control Division segment’s performance (revenues were up 9.4% year over year in the second quarter).
Strength in several end markets, along with the Diversify, Decarbonize and Digitize (3D) strategy, is driving Flowserve's booking levels. With the 3D strategy, the company aims to expand its presence in diverse end markets and benefit from global investments in clean energy and greener infrastructure. The strategy has been enabling the pursuit of cycle-resilient end markets, including water and specialty chemicals.
The company is witnessing improved customer orders resulting from large project wins in the oil and gas end market. Strength in the chemical end market, led by the Emerald greenfield petrochemical project in Saudi Arabia, has also been a positive. Flowserve expects significant chemical capacity additions in the Middle East and modest improvement in overall global chemical demand in the quarters ahead. Solid booking level in the power generation market is also driven by the growth in data center capacity and increasing Artificial Intelligence activity.
The company aims to expand its market share, product offerings and customer base through strategic acquisitions. In July 2024, Flowserve acquired the intellectual property and in-process R&D related to cryogenic liquefied natural gas (LNG) submerged pump technology, systems and packaging from NexGen Cryogenic Solutions Inc.
NexGen’s pump and cold energy recovery turbine technology for the liquefaction, shipping and regasification markets will expand Flowserve’s LNG product portfolio and complement its existing pumps, valves and mechanical seal offerings. NexGen’s technology has been added to the Pump Division segment.
In the past year, this Zacks Rank #3 (Hold) company’s shares have gained 9.9% compared with the industry’s 3.9% growth.
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However, the escalating cost of sales and expenses poses a threat to Flowserve’s bottom line. In the second quarter of 2024, the cost of sales jumped 4.4% year over year to 68.4% of sales due to higher raw material costs. The cost of sales increased 16.1% year over year in 2023. Also, rising research and development costs are pushing up the selling, general and administrative expenses, which increased 3.7% year over year to 20.6% sales.
The company has a significant presence in the international markets. As a result, its financial performance is subject to various risks like the foreign currency exchange rate, interest rate fluctuations and hyperinflation in some foreign countries. The increased value of the U.S. dollar relative to the local currencies of the foreign markets is likely to affect the top line in the quarters ahead.
Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below.
Allegion plc ALLE presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
It has a trailing four-quarter average earnings surprise of 10.3%. The Zacks Consensus Estimate for ALLE’s 2024 earnings has increased 1.1% in the past 60 days.
Eaton Corporation plc ETN currently carries a Zacks Rank of 2. ETN delivered a trailing four-quarter average earnings surprise of 4.7%.
In the past 60 days, the consensus estimate for Eaton’s 2024 earnings has increased 0.8%.
AptarGroup, Inc. ATR presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 7.2%.
In the past 60 days, the Zacks Consensus Estimate for ATR’s 2024 earnings has remained stable.
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Flowserve Corporation (FLS) : Free Stock Analysis Report
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Allegion PLC (ALLE) : Free Stock Analysis Report
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