Flowserve Corp Valuation – January 2019 $FLS

Company Profile (excerpt from Reuters): Flowserve Corporation, incorporated on May 1, 1912, is a manufacturer and aftermarket service provider of flow control systems. The Company’s segments include Engineered Product Division (EPD), Industrial Product Division (IPD) and Flow Control Division (FCD). The Company’s geographic segment includes North America, Europe, Asia Pacific, Middle East and Africa, and Latin America. The Company develops and manufactures precision-engineered flow control equipment integral to the movement, control and protection of the flow of materials in its customer’s critical processes. The Company’s product portfolio of pumps, valves, seals, automation and aftermarket services supports infrastructure industries, including oil and gas, chemical, power generation (including nuclear, fossil and renewable) and water management, as well as certain general industrial markets where its products and services add value. The Company offers a range of aftermarket equipment services, such as installation, diagnostics, repair and retrofitting through manufacturing platform and network of Quick Response Centers (QRCs). The Company’s products include oil and gas, general industries, chemical, power generation and water management.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of FLS – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $4,975,183,199 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.24 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -72.74% Fail
6. Moderate PEmg Ratio PEmg < 20 36.58 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.06 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.24 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.12 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.04
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $15.07
MG Value based on 0% Growth $8.83
Market Implied Growth Rate 14.04%
Current Price $38.02
% of Intrinsic Value N/A

Flowserve Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.21 in 2014 to an estimated $1.04 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 14.04% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Flowserve Corp revealed the company was trading above its Graham Number of $16.73. The company pays a dividend of $0.76 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 36.58, which was above the industry average of 20.63. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-4.95.

Flowserve Corp scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$4.95
Graham Number $16.73
PEmg 36.58
Current Ratio 2.24
PB Ratio 3.06
Current Dividend $0.76
Dividend Yield 2.00%
Number of Consecutive Years of Dividend Growth 11

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $2,324,667,000
Total Current Liabilities $1,040,080,000
Long-Term Debt $1,436,746,000
Total Assets $4,605,064,000
Intangible Assets $1,399,632,000
Total Liabilities $2,974,337,000
Shares Outstanding (Diluted Average) 131,350,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.98
Dec2017 $0.02
Dec2016 $1.01
Dec2015 $1.93
Dec2014 $3.72
Dec2013 $3.41
Dec2012 $2.84
Dec2011 $2.55
Dec2010 $2.29
Dec2009 $2.53
Dec2008 $2.58
Dec2007 $1.49
Dec2006 $0.67
Dec2005 $0.10
Dec2004 $0.16
Dec2003 $0.27
Dec2002 $0.16
Dec2001 -$0.14
Dec2000 $0.12
Dec1999 $0.11
Dec1998 $0.41

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.04
Dec2017 $1.39
Dec2016 $2.24
Dec2015 $2.87
Dec2014 $3.21
Dec2013 $2.88
Dec2012 $2.59
Dec2011 $2.41
Dec2010 $2.20
Dec2009 $1.93
Dec2008 $1.42
Dec2007 $0.73
Dec2006 $0.33
Dec2005 $0.14
Dec2004 $0.15
Dec2003 $0.13
Dec2002 $0.08

Recommended Reading:

Other ModernGraham posts about the company

Flowserve Corp Valuation – February 2018 $FLS
Flowserve Corporation Valuation – May 2016 $FLS
11 Best Stocks For Value Investors This Week – 11/21/15
Flowserve Corp Valuation – November 2015 Update $FLS
The Best Companies of the Construction Industry – October 2015

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Aecon Group Inc Valuation – July 2018 $TSE:ARE

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Flowserve Corp Valuation – February 2018 $FLS

Company Profile (obtained from Marketwatch): Flowserve Corp. develops and manufactures precision-engineered flow control equipment integral to the movement, control and protection of the flow of materials in its customer’s critical processes. It also engaged in providing fluid motion and control products and services. The company manufactures and supplies engineered and industrial pumps, seals and valves as well as a range of related flow management services. It also provides automation and services to the power, oil, gas, chemical and other industries. The company operates through the following segments: Engineered Product, Industrial Product, and Flow Control Division. The Engineered Product Division segment designs, manufacture, distribute and service custom and other highly-engineered pumps and pump systems, mechanical seals and auxiliary systems. The Industrial Product Division segment designs, manufacture, distribute and service engineered, pre-configured industrial pumps and pump systems, including submersible motors and specialty products. The Flow Control Division segment designs, manufactures and distributes a broad portfolio of engineered-to-order and configured-to-order isolation valves, control valves, valve automation products, boiler controls and related services. Flowserve was founded in 1997 and is headquartered in Irving, TX.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of FLS – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,532,392,093 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.06 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -65.28% Fail
6. Moderate PEmg Ratio PEmg < 20 34.64 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.36 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.06 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.14 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.22
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $17.73
MG Value based on 0% Growth $10.39
Market Implied Growth Rate 13.07%
Current Price $42.35
% of Intrinsic Value N/A

Flowserve Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.21 in 2014 to an estimated $1.22 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.07% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Flowserve Corp revealed the company was trading above its Graham Number of $20.91. The company pays a dividend of $0.76 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 34.64, which was above the industry average of 25.98. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-5.3.

Flowserve Corp scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$5.30
Graham Number $20.91
PEmg 34.64
Current Ratio 2.06
PB Ratio 3.36
Current Dividend $0.76
Dividend Yield 1.79%
Number of Consecutive Years of Dividend Growth 11

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $2,558,745,000
Total Current Liabilities $1,242,908,000
Long-Term Debt $1,499,658,000
Total Assets $4,910,474,000
Intangible Assets $1,428,237,000
Total Liabilities $3,255,887,000
Shares Outstanding (Diluted Average) 131,417,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.53
Dec2017 $0.02
Dec2016 $1.01
Dec2015 $1.93
Dec2014 $3.72
Dec2013 $3.41
Dec2012 $2.84
Dec2011 $2.55
Dec2010 $2.29
Dec2009 $2.53
Dec2008 $2.58
Dec2007 $1.49
Dec2006 $0.67
Dec2005 $0.10
Dec2004 $0.16
Dec2003 $0.27
Dec2002 $0.16
Dec2001 -$0.14
Dec2000 $0.12
Dec1999 $0.11
Dec1998 $0.41

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.22
Dec2017 $1.39
Dec2016 $2.24
Dec2015 $2.87
Dec2014 $3.21
Dec2013 $2.88
Dec2012 $2.59
Dec2011 $2.41
Dec2010 $2.20
Dec2009 $1.93
Dec2008 $1.42
Dec2007 $0.73
Dec2006 $0.33
Dec2005 $0.14
Dec2004 $0.15
Dec2003 $0.13
Dec2002 $0.08

Recommended Reading:

Other ModernGraham posts about the company

11 Best Stocks For Value Investors This Week – 11/21/15
Flowserve Corp Valuation – November 2015 Update $FLS
The Best Companies of the Construction Industry – October 2015
15 Best Stocks For Value Investors This Week – 8/22/15
Flowserve Corporation Analysis – August 2015 Update $FLS

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Stantec Inc Valuation – Initial Coverage $TSE:STN
Home Depot Inc Valuation – February 2017 $HD

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Flowserve Corporation Valuation – May 2016 $FLS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Flowserve Corporation (FLS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Flowserve Corporation is a manufacturer and aftermarket service provider of flow control systems. The Company operates through three segments: Engineered Product Division (EPD), Industrial Product Division (IPD) and Flow Control Division (FCD). Its EPD designs, manufactures, distributes and services engineered pumps and pump systems, mechanical seals, auxiliary systems, replacement parts and related equipment. Its IPD designs, manufactures, distributes and services pre-configured engineered pumps and pump systems, including submersible motors, for industrial markets. Its FCD designs, manufactures, distributes and services a portfolio of industrial valve and automation solutions, including isolation and control valves, actuation, controls and related equipment. Its product portfolio of pumps, valves, seals, automation and aftermarket services support infrastructure industries, including oil and gas, chemical, power generation and water management.

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of FLS – May 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,885,606,086 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.90 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 23.69% Fail
6. Moderate PEmg Ratio PEmg < 20 16.79 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.48 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.90 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.37 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

FLS value chart May 2016

EPSmg $2.73
MG Growth Estimate 0.79%
MG Value $27.50
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $39.57
MG Value based on 0% Growth $23.20
Market Implied Growth Rate 4.14%
Current Price $45.82
% of Intrinsic Value 166.60%

Flowserve Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.59 in 2012 to an estimated $2.73 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.14% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Flowserve Corp receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

FLS charts May 2016

Net Current Asset Value (NCAV) -$6.34
Graham Number $26.79
PEmg 16.79
Current Ratio 1.90
PB Ratio 3.48
Current Dividend $0.73
Dividend Yield 1.59%
Number of Consecutive Years of Dividend Growth 10

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $2,429,189,000
Total Current Liabilities $1,279,802,000
Long-term Debt $1,573,450,000
Total Assets $4,981,050,000
Intangible Assets $1,468,481,000
Total Liabilities $3,258,385,000
Shares Outstanding (Diluted Average) 130,812,000

Earnings Per Share History

Next Fiscal Year Estimate $2.40
12/1/2015 $2.00
12/1/2014 $3.76
12/1/2013 $3.41
12/1/2012 $2.84
12/1/2011 $2.55
12/1/2010 $2.29
12/1/2009 $2.53
12/1/2008 $2.58
12/1/2007 $1.49
12/1/2006 $0.67
12/1/2005 $0.07
12/1/2004 $0.14
12/1/2003 $0.32
12/1/2002 $0.34
12/1/2001 -$0.01
12/1/2000 $0.12
12/1/1999 $0.11
12/1/1998 $0.41
12/1/1997 $0.42
12/1/1996 $0.59

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.73
12/1/2015 $2.90
12/1/2014 $3.22
12/1/2013 $2.88
12/1/2012 $2.59
12/1/2011 $2.41
12/1/2010 $2.20
12/1/2009 $1.92
12/1/2008 $1.41
12/1/2007 $0.73
12/1/2006 $0.34
12/1/2005 $0.17
12/1/2004 $0.21
12/1/2003 $0.22
12/1/2002 $0.17
12/1/2001 $0.13
12/1/2000 $0.24

Recommended Reading:

Other ModernGraham posts about the company

11 Best Stocks For Value Investors This Week – 11/21/15
Flowserve Corp Valuation – November 2015 Update $FLS
The Best Companies of the Construction Industry – October 2015
15 Best Stocks For Value Investors This Week – 8/22/15
Flowserve Corporation Analysis – August 2015 Update $FLS

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Microsoft Corp Valuation – February 2016 $MSFT
Cisco Systems Inc Valuation – February 2016 $CSCO
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Oracle Corporation Valuation – January 2016 Update $ORCL

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Flowserve Corp Valuation – November 2015 Update $FLS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Flowserve Corp (FLS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Flowserve Corporation is a manufacturer and aftermarket service provider of flow control systems. The Company develops and manufactures precision-engineered flow control equipment integral to the movement, control and protection of the flow of materials. The Company operates through three segments: Engineered Product Division (EPD), Industrial Product Division (IPD) and Flow Control Division (FCD). Its EPD designs, manufactures, distributes and services engineered pumps and pump systems, mechanical seals, auxiliary systems, replacement parts and related equipment. Its IPD designs, manufactures, distributes and services pre-configured engineered pumps and pump systems, including submersible motors, for industrial markets. The Company’s FCD designs, manufactures, distributes and services a portfolio of industrial valve and automation solutions, including isolation and control valves, actuation, controls and related equipment.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of FLS – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,965,015,185 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.02 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 100.63% Pass
6. Moderate PEmg Ratio PEmg < 20 15.13 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.59 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.02 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.21 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

FLS value Chart November 2015

EPSmg $3.01
MG Growth Estimate 3.76%
MG Value $48.25
Opinion Fairly Valued
MG Value based on 3% Growth $43.69
MG Value based on 0% Growth $25.61
Market Implied Growth Rate 3.31%
Current Price $45.58
% of Intrinsic Value 94.46%

Flowserve Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the inconsistent dividend record and the high PB ratio.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.41 in 2011 to an estimated $3.01 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 3.31% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Flowserve Corp (FLS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

FLS Charts November 2015

Net Current Asset Value (NCAV) -$6.16
Graham Number $26.12
PEmg 15.13
Current Ratio 2.02
PB Ratio 3.59
Dividend Yield 1.54%
Number of Consecutive Years of Dividend Growth 9

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $2,649,729,000
Total Current Liabilities $1,314,279,000
Long-Term Debt $1,610,059,000
Total Assets $5,158,255,000
Intangible Assets $1,470,729,000
Total Liabilities $3,469,932,000
Shares Outstanding (Diluted Average) 133,160,000

Earnings Per Share History

Next Fiscal Year Estimate $2.34
Dec14 $3.76
Dec13 $3.41
Dec12 $2.84
Dec11 $2.55
Dec10 $2.29
Dec09 $2.53
Dec08 $2.58
Dec07 $1.49
Dec06 $0.67
Dec05 $0.10
Dec04 $0.16
Dec03 $0.27
Dec02 $0.16
Dec01 -$0.14
Dec00 $0.12
Dec99 $0.11
Dec98 $0.41
Dec97 $0.42
Dec96 $0.59
Dec95 $0.41

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.01
Dec14 $3.22
Dec13 $2.88
Dec12 $2.59
Dec11 $2.41
Dec10 $2.20
Dec09 $1.93
Dec08 $1.42
Dec07 $0.73
Dec06 $0.33
Dec05 $0.14
Dec04 $0.15
Dec03 $0.13
Dec02 $0.08
Dec01 $0.09
Dec00 $0.24
Dec99 $0.34

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Construction Industry – October 2015
15 Best Stocks For Value Investors This Week – 8/22/15
Flowserve Corporation Analysis – August 2015 Update $FLS
The Best Companies of the Construction Industry – June 2015
30 Companies in the Spotlight This Week – 5/23/15

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Jacobs Engineering Group Analysis – October 2015 Update $JEC
D.R. Horton Inc. Analysis – October 2015 Update $DHI
The Best Companies of the Construction Industry – October 2015
Mohawk Industries Inc. Analysis – October 2015 Update $MHK
PulteGroup Inc. Analysis – October 2015 Update $PHM

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

 

Flowserve Corporation Analysis – August 2015 Update $FLS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Flowserve Corporation (FLS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Flowserve Corporation is a manufacturer and aftermarket service provider of flow control systems. The Company develops and manufactures precision-engineered flow control equipment integral to the movement, control and protection of the flow of materials. The Company operates through three segments: Engineered Product Division (EPD), Industrial Product Division (IPD) and Flow Control Division (FCD). Its EPD designs, manufactures, distributes and services engineered pumps and pump systems, mechanical seals, auxiliary systems, replacement parts and related equipment. Its IPD designs, manufactures, distributes and services pre-configured engineered pumps and pump systems, including submersible motors, for industrial markets. The Company’s FCD designs, manufactures, distributes and services a portfolio of industrial valve and automation solutions, including isolation and control valves, actuation, controls and related equipment.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of FLS – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 3.03
MG Growth Estimate 3.84%
MG Value $48.97
Opinion Fairly Valued
MG Value based on 3% Growth $43.88
MG Value based on 0% Growth $25.72
Market Implied Growth Rate 3.52%
Current Price $47.05
% of Intrinsic Value 96.08%

Flowserve Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the inconsistent dividend history, and the high PB ratio.  The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.41 in 2011 to an estimated $3.03 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 3.52% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Flowserve Corporation (FLS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

FLS charts August 2015

Net Current Asset Value (NCAV) -$5.67
PEmg 15.55
Current Ratio 2.04
PB Ratio 3.59
Dividend Yield 1.45%
Number of Consecutive Years of Dividend Growth 9

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $2,778,940,000
Total Current Liabilities $1,365,418,000
Long-Term Debt $1,626,150,000
Total Assets $5,312,122,000
Intangible Assets $1,479,045,000
Total Liabilities $3,543,546,000
Shares Outstanding (Diluted Average) 134,831,000

Earnings Per Share History

Next Fiscal Year Estimate $2.38
Dec14 $3.76
Dec13 $3.41
Dec12 $2.84
Dec11 $2.55
Dec10 $2.29
Dec09 $2.53
Dec08 $2.58
Dec07 $1.49
Dec06 $0.67
Dec05 $0.10
Dec04 $0.16
Dec03 $0.27
Dec02 $0.16
Dec01 -$0.14
Dec00 $0.12
Dec99 $0.11
Dec98 $0.41
Dec97 $0.42
Dec96 $0.59
Dec95 $0.41

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.03
Dec14 $3.22
Dec13 $2.88
Dec12 $2.59
Dec11 $2.41
Dec10 $2.20
Dec09 $1.93
Dec08 $1.42
Dec07 $0.73
Dec06 $0.33
Dec05 $0.14
Dec04 $0.15
Dec03 $0.13
Dec02 $0.08
Dec01 $0.09
Dec00 $0.24
Dec99 $0.34

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Construction Industry – June 2015
30 Companies in the Spotlight This Week – 5/23/15
Flowserve Corporation Quarterly Valuation – May 2015 $FLS
40 Companies in the Spotlight This Week – 2/21/15
Flowserve Corporation Quarterly Valuation – February 2015 $FLS

Other ModernGraham posts about related companies

Alexander & Baldwin Inc Analysis – Initial Coverage $ALEX
Lennar Corporation Analysis – August 2015 Update $LEN
Aecom Analysis – Initial Coverage $ACM
Quanta Services Inc. Analysis – July 2015 Update $PWR
Fluor Corporation Analysis – July 2015 Update $FLR
Martin Marietta Materials Inc. Analysis – Initial Coverage $MLM
D.R. Horton Inc. Analysis – July 2015 Update $DHI
Jacobs Engineering Group Inc. Analysis – July 2015 Update $JEC
PulteGroup Analysis – June 2015 Update $PHM
The Best Companies of the Construction Industry – June 2015

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.

Flowserve Corporation Quarterly Valuation – May 2015 $FLS

FS_red2x3quartersFlowserve Corporation (FLS) has seen a significant drop in price by the market, coinciding with the drop in oil. However, according to Bryan Wagman of Always Bullish Blog, the company stands in a good position to make investments which will improve its margins long-term. In addition, Flowserve CEO Mark Blinn expects the company to successfully navigate the current industry cycle. These are all things to consider before investing in the company and are considerations that may attract investors.

That said, Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to determine a potential investment’s merits. Here’s an updated look at how Nvidia Corporation fares in the ModernGraham valuation model.

This model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using the ModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

FLS Chart

FLS data by YCharts

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Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – PASS
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – Has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – Earnings per share has increased by at least one-third over the last 10 years, using three-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – Must pass at least 4 of the following 5 tests, or be suitable for a Defensive Investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings Growth – EPSmg greater than that 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $56.48
MG Value $62.60
MG Opinion Fairly Valued
Value Based on 3% Growth $47.37
Value Based on 0% Growth $27.77
Market Implied Growth Rate 4.39%
Net Current Asset Value (NCAV) -$5.44
PEmg 17.29
Current Ratio 2.06
PB Ratio 4.38

Balance Sheet – March 2015

Current Assets $2,760,000,000
Current Liabilities $1,341,000,000
Total Debt $1,621,000,000
Total Assets $5,252,000,000
Intangible Assets $1,462,000,000
Total Liabilities $3,500,000,000
Outstanding Shares 136,000,000

Earnings Per Share

2015 (estimate) $3.10
2014 $3.76
2013 $3.41
2012 $2.84
2011 $2.55
2010 $2.29
2009 $2.53
2008 $2.58
2007 $1.49
2006 $0.67
2005 $0.10

Earnings Per Share – ModernGraham

2015 (estimate) $3.27
2014 $3.22
2013 $2.88
2012 $2.59
2011 $2.41
2010 $2.20

Dividend History

FLS Dividend Chart

FLS Dividend data by YCharts

Conclusion

Flowserve should satisfy the Enterprising Investor but not the Defensive Investor. The Defensive Investor is concerned by the short dividend history and the high PB ratio, while the Enterprising Investor is only concerned by the level of debt relative to the net current assets. Therefore, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $2.41 in 2011 to an estimated $3.27 for 2015. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 4.39% over the next 7-10 years.

The company’s recent earnings history shows an average annual growth in EPSmg of around 7.1%. The ModernGraham valuation model reduces such a rate to a more conservative figure, assuming some slowdown will occur, but still returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating Flowserve is fairly valued at the present time.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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Flowserve Corporation Quarterly Valuation – February 2015 $FLS

FS_red2x3quartersBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – February 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Flowserve Corporation (FLS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Flowserve Corporation is a manufacturer and aftermarket service provider of comprehensive flow control systems. The Company is engaged in development and manufacture of precision-engineered flow control equipment for the movement, control and protection of the flow of materials in critical applications. The Company’s product portfolio includes pumps, valves, seals, automation and aftermarket services supports global infrastructure industries, including oil and gas, chemical, power generation (including nuclear, fossil and renewable) and water management. The Company conducts its business operations through three segments: Engineered Product Division, Industrial Product Division and Flow Control Division.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $62.55
MG Value $72.55
MG Opinion Fairly Valued
Value Based on 3% Growth $46.74
Value Based on 0% Growth $27.40
Market Implied Growth Rate 5.45%
Net Current Asset Value (NCAV) -$1.77
PEmg 19.41
Current Ratio 1.90
PB Ratio 4.44

Balance Sheet – December 2014

Current Assets $2,794,000,000
Current Liabilities $1,472,000,000
Total Debt $1,102,000,000
Total Assets $4,968,000,000
Intangible Assets $1,214,000,000
Total Liabilities $3,036,000,000
Outstanding Shares 137,000,000

Earnings Per Share

2014 $3.76
2013 $3.41
2012 $2.84
2011 $2.55
2010 $2.29
2009 $2.53
2008 $2.58
2007 $1.49
2006 $0.67
2005 $0.10
2004 $0.16

Earnings Per Share – ModernGraham

2014 $3.22
2013 $2.88
2012 $2.59
2011 $2.41
2010 $2.20
2009 $1.93

Dividend History

Conclusion:

Flowserve Corporation is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, short dividend record, and the high PB ratio, while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.20 in 2010 to $3.22 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 5.45% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

Be sure to check out previous ModernGraham valuations of Flowserve Corporation (FLS) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Flowserve Corporation (FLS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Flowserve Corporation (FLS) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Flowserve Corporation Quarterly Valuation – November 2014 $FLS

FS_red2x3quartersBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows – November 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Flowserve Corp (FLS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Flowserve Corporation is a manufacturer and aftermarket service provider of flow control systems. The Company develops and manufacture precision-engineered flows control equipment integral to the movement, control and protection of the flow of materials in its customers’ critical processes. The Company operates in three segments: Engineered Product Division (EPD), which includes long leads time, custom and other engineered pumps and pump systems, mechanical seals, auxiliary systems and replacement parts and related services, Industrial Product Division (IPD), which includes pre-configured engineered pumps and pump systems and related products and services, and Flow Control Division (FCD), which includes engineered and industrial valves, control valves, actuators and controls and related services. Effective December 10, 2013, Flowserve Corp acquired Innovative Mag-Drive LLC.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $67.21
MG Value $71.23
MG Opinion Fairly Valued
Value Based on 3% Growth $46.45
Value Based on 0% Growth $27.23
Market Implied Growth Rate 6.24%
Net Current Asset Value (NCAV) -$1.50
PEmg 20.98
Current Ratio 2.03
PB Ratio 4.83

Balance Sheet – September 2014

Current Assets $2,673,000,000
Current Liabilities $1,315,000,000
Total Debt $1,113,000,000
Total Assets $4,794,000,000
Intangible Assets $1,225,000,000
Total Liabilities $2,879,000,000
Outstanding Shares 137,500,000

Earnings Per Share

2014 (estimate) $3.70
2013 $3.41
2012 $2.84
2011 $2.55
2010 $2.29
2009 $2.53
2008 $2.58
2007 $1.49
2006 $0.67
2005 $0.10
2004 $0.16

Earnings Per Share – ModernGraham

2014 (estimate) $3.20
2013 $2.88
2012 $2.59
2011 $2.41
2010 $2.20
2009 $1.93

Dividend History

Conclusion:

Flowserve Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns regarding the short dividend history as well as the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.20 in 2010 to an estimated $3.20 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 6.24% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

Be sure to check out previous ModernGraham valuations of Flowserve Corporation (FLS) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Flowserve Corporation (FLS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Flowserve Corporation (FLS) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Flowserve Corporation Quarterly Valuation – August 2014 $FLS

FS_red2x3quartersBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Flowserve Corporation (FLS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Flowserve Corporation is a manufacturer and aftermarket service provider of flow control systems. The Company develops and manufacture precision-engineered flows control equipment integral to the movement, control and protection of the flow of materials in its customers’ critical processes. The Company operates in three segments: Engineered Product Division (EPD), which includes long leads time, custom and other engineered pumps and pump systems, mechanical seals, auxiliary systems and replacement parts and related services, Industrial Product Division (IPD), which includes pre-configured engineered pumps and pump systems and related products and services, and Flow Control Division (FCD), which includes engineered and industrial valves, control valves, actuators and controls and related services. Effective December 10, 2013, Flowserve Corp acquired Innovative Mag-Drive LLC.
FLS Chart

FLS data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $72.96
MG Value $73.22
MG Opinion Fairly Valued
Value Based on 3% Growth $46.88
Value Based on 0% Growth $27.48
Market Implied Growth Rate 7.03%
Net Current Asset Value (NCAV) -$1.66
PEmg 22.56
Current Ratio 2.02
PB Ratio 5.13

Balance Sheet – 6/30/2014

Current Assets $2,729,000,000
Current Liabilities $1,350,700,000
Total Debt $1,123,900,000
Total Assets $4,886,100,000
Intangible Assets $1,253,800,000
Total Liabilities $2,954,300,000
Outstanding Shares 135,760,000

Earnings Per Share

2014 (estimate) $3.79
2013 $3.41
2012 $2.84
2011 $2.55
2010 $2.29
2009 $2.53
2008 $2.58
2007 $1.49
2006 $0.67
2005 $0.27
2004 $0.12

Earnings Per Share – ModernGraham

2014 (estimate) $3.23
2013 $2.88
2012 $2.59
2011 $2.41
2010 $2.20
2009 $1.94

Dividend History
FLS Dividend Chart

FLS Dividend data by YCharts

Conclusion:

Flowserve Corporation is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the lack of dividend payments, and the high PEmg and PB ratios.  The Enterprising Investor has no major initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.20 in 2010 to an estimated $3.23 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 7.03% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well within a safety margin relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Flowserve Corporation (FLS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Flowserve Corporation (FLS) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Masco Corp Valuation – February 2019 $MAS

Company Profile (excerpt from Reuters): Masco Corporation, incorporated on June 15, 1962, designs, manufactures, markets and distributes branded home improvement and building products. The Company operates through four business segments: Plumbing Products, Decorative Architectural Products, Cabinetry Products, and Windows and Other Specialty Products. The Company’s portfolio of brands includes BEHR paint; DELTA and HANSGROHE faucets, bath and shower fixtures; KRAFTMAID and MERILLAT cabinets; MILGARD windows and doors, and HOT SPRING spas.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MAS – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $11,044,960,279 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.64 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -233.67% Fail
6. Moderate PEmg Ratio PEmg < 20 17.77 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 163.54 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.64 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.75 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.11
MG Growth Estimate 15.00%
MG Value $81.21
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $30.59
MG Value based on 0% Growth $17.93
Market Implied Growth Rate 4.64%
Current Price $37.49
% of Intrinsic Value 46.16%

Masco Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.98 in 2015 to an estimated $2.11 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.64% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Masco Corp revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.44 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 17.77, which was below the industry average of 20.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-8.5.

Masco Corp performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$8.50
Graham Number $0.00
PEmg 17.77
Current Ratio 1.64
PB Ratio 163.54
Current Dividend $0.44
Dividend Yield 1.16%
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,766,000,000
Total Current Liabilities $1,684,000,000
Long-Term Debt $2,971,000,000
Total Assets $5,393,000,000
Intangible Assets $1,304,000,000
Total Liabilities $5,324,000,000
Shares Outstanding (Diluted Average) 301,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.64
Dec2018 $2.37
Dec2017 $1.66
Dec2016 $1.48
Dec2015 $1.02
Dec2014 $2.38
Dec2013 $0.80
Dec2012 -$0.33
Dec2011 -$1.66
Dec2010 -$3.00
Dec2009 -$0.53
Dec2008 -$1.13
Dec2007 $1.03
Dec2006 $1.22
Dec2005 $2.19
Dec2004 $1.96
Dec2003 $1.65
Dec2002 $1.01
Dec2001 $0.35
Dec2000 $1.31
Dec1999 $1.28

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.11
Dec2018 $1.82
Dec2017 $1.52
Dec2016 $1.33
Dec2015 $0.98
Dec2014 $0.52
Dec2013 -$0.59
Dec2012 -$1.30
Dec2011 -$1.54
Dec2010 -$1.15
Dec2009 $0.04
Dec2008 $0.56
Dec2007 $1.48
Dec2006 $1.67
Dec2005 $1.74
Dec2004 $1.43
Dec2003 $1.15

Recommended Reading:

Other ModernGraham posts about the company

5 Companies for Enterprising Investors Near 52 Week Lows – July 2018
Masco Corp Valuation – May 2018 $MAS
Masco Corp Valuation – January 2017 $MAS
Masco Corporation Analysis – September 2015 Update $MAS
Masco Corporation Annual Valuation – 2015 $MAS

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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