Providers of flow technology equipment and systems are largely on track for improved performances this year and in 2014. It is a good bet that their stock prices are likely to follow.
These companies manufacture processing products used by industries such as food and beverages, oil & gas, and wastewater treatment, among others. They serve a wide range of end markets that are mostly poised for increased earnings and are likely to spend on capital projects. While these positive trends persist, flow technology companies’ prospects ought to remain favorable. Let’s highlight several sector participants, starting with a top selection, SPX Corporation (NYSE:SPW).
Poised for rapid EPS growth
SPX Corporation (NYSE:SPW) operates a flow technology segment that provided 53% of 2012 sales, according to the company’s annual report. The unit supplies the food/beverage, oil &gas, power generation, and industrial flow markets. The company is experiencing rising demand overseas from the energy and food industries.
Moreover, SPX Corporation (NYSE:SPW) serves the power-generation market. Through its thermal segment, it is a major producer of power transformers. This power transformer business is high margined, and is an important component to review when analyzing the company’s overall earnings trend.
In fact, SPX Corporation (NYSE:SPW) is benefiting from last year’s expansion of a power transformer facility. Additionally, it appears the company’s margins are gaining ground thanks to restructuring and other cost cutting initiatives.
Resulting margin expansion is helping SPX to outperform expectations, and the earnings per share outlook is solid. The only challenge, seemingly, is declining sales from its ClydeUnion original equipment pump business.
Some of the most attractive features of SPX Corporation (NYSE:SPW) as a long-term investment are:
- It is focused on new-product development, a factor that should allow it to maintain or grow its market share.
- SPX is targeting expanded scale globally by way of organic projects and acquisitions. This is particularly within its flow technology business.
Based on these factors, SPX Corporation (NYSE:SPW) stock is a good selection for portfolios with a long-term outlook.
Increasing sales and margins
A second, even larger, flow technology company to consider is Flowserve Corporation (NYSE:FLS). The company’s flow control systems are utilized by a wide range of industries, led by oil & gas, chemicals, and power generation.
EPS improved to $1.51 during the first six months of 2013, up from $1.22 last year. This positive trend is likely to persist, behind spending across the globe on gas and chemical projects.
The favorable outlook is reflected in Flowserve Corporation (NYSE:FLS)’s bookings, currently on the rise, particularly in its flow control division, where they were recently up about 10% according to the company’s latest 10-Q. Furthermore, Flowserve Corporation (NYSE:FLS) is achieving gross margin improvements on a better mix of products and cost containment measures.
Flowserve Corporation (NYSE:FLS), like many industrial companies, is dependent upon the timing of projects. That said, late 2013 should bring an increased number of projects. Plus, the company is taking initiatives to expand its presence in overseas regions, such as Asia, where opportunities are available given economic growth in the region.