On Thursday, Goldman Sachs revised its rating on shares of Flowserve Corp . (NYSE: FLS), moving from Sell to Neutral. The change reflects the firm's recognition of Flowserve's significant operational improvements and the positive growth outlook for its end markets. The analyst from Goldman Sachs noted that Flowserve has materially enhanced its operational performance, which supports the prospect of strong growth in the coming years.
This optimism is supported by the company's impressive 61.76% return over the past year, with the stock currently trading near its 52-week high of $62.32. According to InvestingPro data, Flowserve maintains a "GOOD" financial health score, though it's currently trading above its Fair Value.
The decision to upgrade the stock comes after a period of observed improvements. The analyst pointed out that when Flowserve was downgraded to Sell on December 7, 2017, the anticipation was that the company's end markets would not experience a substantial increase in capital expenditures for several years and that it would take time for Flowserve to significantly boost its profitability. The company has proven its resilience, maintaining dividend payments for 18 consecutive years while operating with a moderate level of debt.
In the past two years, Flowserve has demonstrated marked improvements not only in its end markets, such as Power, but also in its execution. The company has successfully expanded its margins by 560 basis points from 2022 to 2024, achieving a gross profit margin of 31.56%. The analyst believes that Flowserve's initiatives, particularly the 80/20 strategy, will continue to propel its margins further.
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The 80/20 initiatives are expected to play a pivotal role in Flowserve's continued margin expansion. These initiatives are designed to streamline operations and focus on the most profitable segments of the business, thereby enhancing overall efficiency and profitability.
Flowserve's positive trajectory is underscored by the analyst's comments, suggesting a more favorable outlook for the company's financial performance. The upgrade to a Neutral rating indicates a shift in expectation, with the analyst recognizing the company's progress and potential for future growth.
In other recent news, Flowserve Corporation (NYSE:FLS) reported a strong third-quarter performance, with revenue reaching $1.1 billion, a 3.5% increase year-over-year. The company's adjusted earnings per share grew by 24% to $0.62, despite a discrete charge of $0.07 related to long-term asbestos liabilities.
The company's backlog increased by $100 million to $2.8 billion, with bookings of $1.2 billion and a book-to-bill ratio of over 1.06. Flowserve also reaffirmed its full-year adjusted earnings guidance of $2.60 to $2.75 per share.
The company's recent developments include the successful integration of MOGAS Industries, which is expected to enhance product offerings and generate $15 million in cost synergies by the end of the second year. Flowserve anticipates continued growth in power markets, with nearly 30% growth in power bookings year-over-year.
According to the company's outlook, Flowserve is targeting significant operational improvements and margin expansion, aiming for 100 to 200 basis points by 2027. The company is focusing on energy transition and digital solutions as part of its growth strategy. Flowserve is confident in achieving its financial targets for 2027, emphasizing solid operational performance and strategic capital allocation.
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