12/5/10
Why is it so difficult to get excited about pumps, valves and seals? Take one view of a petroleum refinery plant and the excitement will commence. Pumps, valves and seals galore! Flowserve (NYSE: FLS) is a $6 billion company by market cap, and they mean business in the diversified machinery industry.
What company outperforms 80% of the industry in ROE (TTM) at 20.72 percent? Flowserve. What company outperforms 93% of the industry in EPS growth over the past five years at 71.2 percent? Flowserve…AGAIN. The performance can be attributed to the ongoing service the company provides to clients. There is the sale, and then there is service after the sale.
The company has an ongoing relationship with several big name companies in the oil services industry. Flowserve released information regarding a deal with Shell on December 2 to be the sole supplier for control valves and related goods. The agreement has an option that would make Flowserve the go-to company for Shell over the next 10 years. A deal announced two days prior with Abu Dhabi Company for Onshore Oil Operations (ADCO), was booked at $7.5 million in pump equipment. Shell and ADCO are just two of over 10,000 companies Flowserve sells and services to. Oil and gas accounts for 36% of bookings, power generation 20%, general industries 19%, chemical 18% and 7% in water management. www.flowserve.com
Flowserve is up over 12% this year and closed Friday +$1.98 (+1.81%) at $111.32. A gross margin of 35.57% is near the top in the industry and leads to 9.45% profit margin. Using a metric that takes any one-timers out of the equation, ROIC is pretty impressive at 13.69 percent. Revenues are $4.09 billion for the TTM with gross profits of the comparable time at $1.55 billion.
Time will tell if the purchase of Valbart this past July justifies the $200 million purchase price. This acquisition intends to expand the company’s sales support. Flowserve also has no significant payments on its $540 million bank loan until the fourth quarter of 2011. The company updated its 2010 full year EPS target to $6.70-7.15, slightly revised on the lower end from $6.35. Currency risk is a known exposure for a global company and Flowserve is no exception. North American business accounts for 32% of sales/service followed by Europe at 25% and the Middle East, Africa, Latin America and the Asia Pacific totaling 43 percent.
Disclosure: Unless listed following this disclosure, DavidsCreek, LLC or Jerry R. Carter, does not have a financial interest in any equities, equity options, futures, or futures options recommended or described herein. All employees and agents will not initiate positions until 24 hours after publication before acting on recommendations. Copyright 2010 all rights reserved. All data and statements are reasonably believed to be reliable and accurate; however DavidsCreek, LLC or Jerry R. Carter, does not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. There is a risk of loss trading equities, equities options, futures and futures options. Past performance is not a guarantee of future results.
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