February 5, 2019

FLS – Market expectations are for a recovery in Uniform ROA, but management appears concerned about margins, growth, backlogs, and costs


  • Flowserve Corporation (FLS:USA)¬†currently trades above historical averages relative to UAFRS-based (Uniform) Earnings, with a 29.7x Uniform P/E, implying bullish expectations for the firm. However, management has concerns about gross margins, power market sales, backlog issues, and cost management
  • Specifically, management may lack confidence in their ability to sustain operational and financial results, and may be concerned about seasonality and currency headwinds. Also, they may be concerned about their ability to maintain stable performance in the power market and benefit from technology innovations. Furthermore, they may be overstating the possibility of production facility expansions, and their excitement about the interstate pipeline. Moreover, they may also lack confidence in their ability to handle backlogs, and may be concerned about escalating backlog issues. Additionally, they may lack confidence in their ability to minimize delays, and may be concerned about customer MRO spending. They may also lack confidence in their ability to simplify and improve their business model, and in the success of their enterprise CRM system. Finally, they may lack confidence in their ability to improve cost management and progress on cost and revenue targets
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