We believe that growth in corporate capital expenditure in the core industries in which Flowserve operates may accelerate significantly, which could place the company in the early stages of a new growth cycle. Notably, this trend correlates with management efforts to improve operational efficiency to increase cash flow generation. In the first quarter, Flowserve orders rose 15% qoq and management is fairly optimistic that this trend will continue.
We simulate more than 10% growth in company orders in 2021. We expect the momentum to continue into 2022, although we note that the figure will be below the 2019 level in terms of original equipment orders. However, we assume that capital expenditures in the main markets may accelerate at a faster pace, so our forecast may look rather conservative at the moment. We believe that the company’s business will receive significant support from the global economic recovery after the pandemic, so we increase our target price for Flowserve shares from $ 40 to $ 48.
The company, in its current form, was created in 1997 through the merger of BW/IPand Durco International. Flowserve provides a wide variety of pumps, valves, seals, and automation to customers across a wide range of end-markets and geographies. The company also provides aftermarket support through its network of Quick Response Centers. The Flowserve Pump Division (FPD — ~68% of sales) is the company’s largest and is a combination of the legacy Engineered Products Division (consists of design, manufacture, and distribution of long lead-time, highly customized and engineered pumps, pump systems, mechanical seals, and aftermarket services) and Industrial Products Division (consists of pumps and pump systems for a variety of end-markets, but with a lower degree of customization). The Flow Control Division (FCD — ~32% of sales) manufactures valves, actuation, controls, and related equipment, with custom and engineered solutions available.