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Why Flowserve's 2Q16 Results Disappointed Wall Street

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Part 8
Why Flowserve's 2Q16 Results Disappointed Wall Street PART 8 OF 10

Why Flowserve Reduced Its Earnings Guidance after 2Q16

Flowserve’s outlook for 2016

For 2016, analysts expect Flowserve (FLS) to report revenue of ~$4.0 billion, ~10% lower than its 2015 revenue of $4.5 billion. Gross margins and restructuring efforts will play important roles for the company in 2016.

Analysts expect FLS to report adjusted EPS (earnings per share) of ~$2.40–$2.60 in 2016 compared to $2.86 in 2015. The company’s management has tightened its 2016 EPS guidance range, as it expects the current market conditions to persist.

Why Flowserve Reduced Its Earnings Guidance after 2Q16

Why Flowserve Reduced Its Earnings Guidance after 2Q16

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For 2016, FLS projects its capital expenditure to be ~$105 million–$115 million. It will look to invest nearly $150 million in strategic alliances. FLS plans to reduce its debt by $60 million.

Flowserve’s peers’ 2016 outlooks

In 2016, Emcor Group (EME) expects its 2Q16 revenue to rise by 9.3% to $7.3 billion, compared to $6.7 billion in 2015. Its net profit is also expected to rise by 4.3% in 2016.

Graco (GGG) expects its revenue to rise by 3.0%, and it expects its net profit to fall by 2.1% in 2016.

Pentair (PNR) expects its 2Q16 revenue to rise by 32.7% to $4.1 billion, compared to $3.0 billion in 2015. Its net profit is also expected to rise by 32.4% in 2016.

Flowserve’s stock performance

FLS rose by 11.3% from January 1, 2016, to August 1, 2016, in comparison to the ~11.0% rise in the Industrial Select Sector SPDR ETF (XLI) in the same period. From August 1, 2015, to August 1, 2016, FLS fell by 1.6% while XLI rose by 6.9%.

We can see that Flowserve’s revenue and earnings outlooks for 2016 are suppressed compared to those of its peers. Now let’s see whether Flowserve is trading at a premium or at a discount to its peers following its 2Q16 results.

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