Leading manufacturer and aftermarket service provider of comprehensive flow control systems, Flowserve Corp FLS, is expected to report its first-quarter 2015 results on Apr 22. In the last reported quarter, quarterly earnings beat the Zacks Consensus Estimate by 3 cents. Let’s see how things are shaping up for this announcement.
Key Factors in the First Quarter
Flowserve holds a diversified mix of products, end markets and geographies and remains bullish on investment projects conducted on a global platform. In particular, healthy prospects of the U.S. chemical market business, strong investment projection in Asian and European markets and surging investments in solar and conventional power in the Middle East are likely to be the key growth drivers for the company.
Also, Flowserve is expected to benefit from the strong synergies generated by the acquisition of the Netherland-based SIHI Group B.V, which was completed in January 2015. This acquired engineered vacuum and fluid pumps provider offers Flowserve scope for opportunistic investments and product-offering expansions in the long term. SIHI’s strong foothold in the vacuum and fluid pump market is likely to augment Flowserve’s prowess in chemical pump, along with engineering and manufacturing services. This apart, the buyout will also enhance the company’s top-line growth and support its cost-saving initiatives.
However, Flowserve’s business remains vulnerable to unfavorable global currency translations. Uncertainty in the broader political macro environment is also expected to hurt the profitability of the company. The current volatility in the Oil and Gas market, with oversupply continuing to pressure the prices and spending levels, is expected to affect the company’s projects and orders. Further, management expects the existing price levels to reduce demand for upstream oil and gas projects, thus, increasing its operating risks.
Earnings Whispers
Our proven model does not conclusively show that Flowserve will beat earnings estimate in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below.
Zacks ESP: The Most Accurate estimate stands at 67 cents while the Zacks Consensus Estimate is higher at 70 cents. This equates to an ESP of -4.29%.
Zacks Rank: Flowserve’s Zacks Rank #3, when combined with a negative ESP, makes surprise prediction difficult. Note that stocks with Zacks Rank #1, #2 and #3 coupled with a positive ESP have a significantly higher chance of beating earnings.
We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Apple Inc. AAPL, earnings ESP of +1.38% and Zacks Rank #2.
Popular, Inc. BPOP, earnings ESP of +9.86% and Zacks Rank #1.
Huntington Ingalls Industries, Inc. HII, earnings ESP of +2.91% and Zacks Rank #2.
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