Intrinsic value of Flowserve Corporation - FLS

Previous Close

$50.46

  Intrinsic Value

$21.78

stock screener

  Rating & Target

str. sell

-57%

Previous close

$50.46

 
Intrinsic value

$21.78

 
Up/down potential

-57%

 
Rating

str. sell

We calculate the intrinsic value of FLS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 6.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  3,910
  4,000
  4,102
  4,218
  4,346
  4,486
  4,639
  4,804
  4,982
  5,173
  5,378
  5,596
  5,829
  6,076
  6,338
  6,616
  6,910
  7,220
  7,549
  7,896
  8,262
  8,648
  9,055
  9,483
  9,935
  10,410
  10,910
  11,437
  11,991
  12,573
Variable operating expenses, $m
  2,640
  2,698
  2,763
  2,837
  2,919
  3,009
  3,107
  3,212
  3,326
  3,449
  3,441
  3,580
  3,729
  3,887
  4,055
  4,233
  4,421
  4,620
  4,830
  5,052
  5,286
  5,533
  5,793
  6,067
  6,356
  6,660
  6,980
  7,317
  7,672
  8,044
Fixed operating expenses, $m
  1,030
  1,053
  1,076
  1,100
  1,124
  1,149
  1,174
  1,200
  1,226
  1,253
  1,281
  1,309
  1,338
  1,367
  1,397
  1,428
  1,459
  1,491
  1,524
  1,558
  1,592
  1,627
  1,663
  1,699
  1,737
  1,775
  1,814
  1,854
  1,895
  1,936
Total operating expenses, $m
  3,670
  3,751
  3,839
  3,937
  4,043
  4,158
  4,281
  4,412
  4,552
  4,702
  4,722
  4,889
  5,067
  5,254
  5,452
  5,661
  5,880
  6,111
  6,354
  6,610
  6,878
  7,160
  7,456
  7,766
  8,093
  8,435
  8,794
  9,171
  9,567
  9,980
Operating income, $m
  239
  249
  263
  281
  303
  328
  358
  392
  430
  472
  657
  707
  762
  822
  886
  955
  1,030
  1,110
  1,195
  1,286
  1,384
  1,488
  1,599
  1,717
  1,842
  1,975
  2,116
  2,266
  2,425
  2,593
EBITDA, $m
  454
  465
  481
  501
  525
  554
  587
  623
  665
  710
  760
  815
  874
  939
  1,008
  1,083
  1,163
  1,249
  1,341
  1,439
  1,543
  1,655
  1,773
  1,900
  2,033
  2,176
  2,326
  2,486
  2,656
  2,835
Interest expense (income), $m
  57
  80
  83
  87
  91
  96
  102
  107
  114
  121
  128
  136
  145
  154
  164
  174
  185
  197
  209
  222
  236
  250
  266
  282
  299
  317
  336
  356
  377
  399
  422
Earnings before tax, $m
  159
  166
  176
  189
  206
  227
  251
  278
  309
  343
  520
  562
  608
  658
  712
  770
  833
  901
  973
  1,051
  1,134
  1,222
  1,317
  1,418
  1,525
  1,639
  1,760
  1,889
  2,026
  2,171
Tax expense, $m
  43
  45
  47
  51
  56
  61
  68
  75
  83
  93
  140
  152
  164
  178
  192
  208
  225
  243
  263
  284
  306
  330
  356
  383
  412
  443
  475
  510
  547
  586
Net income, $m
  116
  121
  128
  138
  151
  166
  183
  203
  226
  251
  380
  410
  444
  480
  520
  562
  608
  657
  710
  767
  828
  892
  961
  1,035
  1,113
  1,197
  1,285
  1,379
  1,479
  1,585

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  4,710
  4,819
  4,943
  5,082
  5,236
  5,405
  5,589
  5,788
  6,003
  6,233
  6,480
  6,743
  7,023
  7,320
  7,636
  7,970
  8,325
  8,699
  9,095
  9,513
  9,954
  10,419
  10,909
  11,426
  11,970
  12,542
  13,145
  13,779
  14,447
  15,149
Adjusted assets (=assets-cash), $m
  4,710
  4,819
  4,943
  5,082
  5,236
  5,405
  5,589
  5,788
  6,003
  6,233
  6,480
  6,743
  7,023
  7,320
  7,636
  7,970
  8,325
  8,699
  9,095
  9,513
  9,954
  10,419
  10,909
  11,426
  11,970
  12,542
  13,145
  13,779
  14,447
  15,149
Revenue / Adjusted assets
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
Average production assets, $m
  1,372
  1,404
  1,440
  1,480
  1,525
  1,575
  1,628
  1,686
  1,749
  1,816
  1,888
  1,964
  2,046
  2,133
  2,225
  2,322
  2,425
  2,534
  2,650
  2,771
  2,900
  3,035
  3,178
  3,329
  3,487
  3,654
  3,830
  4,014
  4,209
  4,413
Working capital, $m
  766
  784
  804
  827
  852
  879
  909
  942
  977
  1,014
  1,054
  1,097
  1,142
  1,191
  1,242
  1,297
  1,354
  1,415
  1,480
  1,548
  1,619
  1,695
  1,775
  1,859
  1,947
  2,040
  2,138
  2,242
  2,350
  2,464
Total debt, $m
  1,543
  1,612
  1,692
  1,782
  1,881
  1,990
  2,108
  2,237
  2,375
  2,523
  2,682
  2,851
  3,032
  3,223
  3,427
  3,642
  3,870
  4,111
  4,366
  4,635
  4,919
  5,219
  5,535
  5,867
  6,217
  6,586
  6,974
  7,383
  7,813
  8,265
Total liabilities, $m
  3,034
  3,103
  3,183
  3,273
  3,372
  3,481
  3,599
  3,728
  3,866
  4,014
  4,173
  4,342
  4,523
  4,714
  4,917
  5,133
  5,361
  5,602
  5,857
  6,126
  6,410
  6,710
  7,025
  7,358
  7,708
  8,077
  8,465
  8,874
  9,304
  9,756
Total equity, $m
  1,677
  1,715
  1,760
  1,809
  1,864
  1,924
  1,990
  2,061
  2,137
  2,219
  2,307
  2,400
  2,500
  2,606
  2,718
  2,837
  2,964
  3,097
  3,238
  3,387
  3,544
  3,709
  3,884
  4,068
  4,261
  4,465
  4,680
  4,905
  5,143
  5,393
Total liabilities and equity, $m
  4,711
  4,818
  4,943
  5,082
  5,236
  5,405
  5,589
  5,789
  6,003
  6,233
  6,480
  6,742
  7,023
  7,320
  7,635
  7,970
  8,325
  8,699
  9,095
  9,513
  9,954
  10,419
  10,909
  11,426
  11,969
  12,542
  13,145
  13,779
  14,447
  15,149
Debt-to-equity ratio
  0.920
  0.940
  0.960
  0.980
  1.010
  1.030
  1.060
  1.090
  1.110
  1.140
  1.160
  1.190
  1.210
  1.240
  1.260
  1.280
  1.310
  1.330
  1.350
  1.370
  1.390
  1.410
  1.430
  1.440
  1.460
  1.480
  1.490
  1.510
  1.520
  1.530
Adjusted equity ratio
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  116
  121
  128
  138
  151
  166
  183
  203
  226
  251
  380
  410
  444
  480
  520
  562
  608
  657
  710
  767
  828
  892
  961
  1,035
  1,113
  1,197
  1,285
  1,379
  1,479
  1,585
Depreciation, amort., depletion, $m
  214
  216
  218
  220
  223
  225
  228
  231
  235
  239
  104
  108
  112
  117
  122
  128
  133
  139
  146
  152
  159
  167
  175
  183
  192
  201
  210
  221
  231
  242
Funds from operations, $m
  330
  337
  346
  358
  373
  391
  411
  435
  460
  489
  484
  518
  556
  597
  642
  690
  741
  797
  856
  919
  987
  1,059
  1,136
  1,218
  1,305
  1,397
  1,495
  1,600
  1,710
  1,827
Change in working capital, $m
  15
  18
  20
  23
  25
  27
  30
  32
  35
  37
  40
  43
  46
  48
  51
  54
  58
  61
  64
  68
  72
  76
  80
  84
  88
  93
  98
  103
  109
  114
Cash from operations, $m
  315
  319
  326
  336
  348
  363
  381
  402
  426
  452
  443
  476
  511
  549
  590
  635
  684
  736
  792
  851
  915
  983
  1,056
  1,134
  1,216
  1,304
  1,397
  1,496
  1,602
  1,713
Maintenance CAPEX, $m
  -74
  -75
  -77
  -79
  -81
  -84
  -87
  -89
  -93
  -96
  -100
  -104
  -108
  -112
  -117
  -122
  -128
  -133
  -139
  -146
  -152
  -159
  -167
  -175
  -183
  -192
  -201
  -210
  -221
  -231
New CAPEX, $m
  -27
  -32
  -36
  -41
  -45
  -49
  -54
  -58
  -63
  -67
  -72
  -77
  -82
  -87
  -92
  -97
  -103
  -109
  -115
  -122
  -128
  -135
  -143
  -150
  -158
  -167
  -176
  -185
  -194
  -204
Cash from investing activities, $m
  -101
  -107
  -113
  -120
  -126
  -133
  -141
  -147
  -156
  -163
  -172
  -181
  -190
  -199
  -209
  -219
  -231
  -242
  -254
  -268
  -280
  -294
  -310
  -325
  -341
  -359
  -377
  -395
  -415
  -435
Free cash flow, $m
  214
  212
  213
  216
  222
  230
  241
  255
  270
  289
  272
  295
  321
  350
  381
  416
  453
  493
  537
  584
  634
  689
  747
  809
  875
  946
  1,021
  1,101
  1,187
  1,277
Issuance/(repayment) of debt, $m
  60
  70
  80
  90
  99
  109
  119
  128
  138
  148
  159
  169
  180
  192
  203
  216
  228
  241
  255
  269
  284
  299
  316
  333
  350
  369
  388
  409
  430
  452
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  60
  70
  80
  90
  99
  109
  119
  128
  138
  148
  159
  169
  180
  192
  203
  216
  228
  241
  255
  269
  284
  299
  316
  333
  350
  369
  388
  409
  430
  452
Total cash flow (excl. dividends), $m
  274
  282
  293
  306
  321
  339
  360
  383
  409
  437
  431
  465
  502
  542
  585
  631
  681
  735
  792
  853
  918
  988
  1,062
  1,141
  1,225
  1,315
  1,409
  1,510
  1,616
  1,729
Retained Cash Flow (-), $m
  -35
  -39
  -44
  -49
  -55
  -60
  -66
  -71
  -76
  -82
  -88
  -94
  -100
  -106
  -112
  -119
  -126
  -133
  -141
  -149
  -157
  -166
  -174
  -184
  -194
  -204
  -215
  -226
  -238
  -250
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  239
  244
  249
  256
  266
  279
  294
  312
  332
  355
  343
  371
  402
  436
  472
  512
  555
  601
  651
  704
  761
  823
  888
  957
  1,032
  1,111
  1,195
  1,284
  1,379
  1,479
Discount rate, %
  5.90
  6.20
  6.50
  6.83
  7.17
  7.53
  7.91
  8.30
  8.72
  9.15
  9.61
  10.09
  10.60
  11.13
  11.68
  12.27
  12.88
  13.52
  14.20
  14.91
  15.65
  16.44
  17.26
  18.12
  19.03
  19.98
  20.98
  22.03
  23.13
  24.29
PV of cash for distribution, $m
  226
  216
  206
  197
  188
  181
  173
  165
  157
  148
  125
  117
  109
  99
  90
  80
  71
  61
  52
  44
  36
  29
  23
  18
  13
  10
  7
  5
  3
  2
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Flowserve Corporation is a manufacturer and aftermarket service provider of flow control systems. The Company's segments include Engineered Product Division, Industrial Product Division and Flow Control Division. Its geographic segments include North America, Europe, Asia Pacific, Middle East and Africa, and Latin America. It 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. Its product portfolio of pumps, valves, seals, automation and aftermarket services supports infrastructure industries, including oil and gas, chemical, power generation and water management. It offers aftermarket equipment services, such as installation, diagnostics, repair and retrofitting through manufacturing platform and network of Quick Response Centers. Its products include oil and gas, general industries, chemical, power generation and water management.

FINANCIAL RATIOS  of  Flowserve Corporation (FLS)

Valuation Ratios
P/E Ratio 49.6
Price to Sales 1.6
Price to Book 4.1
Price to Tangible Book
Price to Cash Flow 27.3
Price to Free Cash Flow 43.7
Growth Rates
Sales Growth Rate -12.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50.5%
Cap. Spend. - 3 Yr. Gr. Rate -8.3%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 92%
Total Debt to Equity 97.2%
Interest Coverage 5
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. 6.8%
Return On Total Capital 4.1%
Ret/ On T. Cap. - 3 Yr. Avg. 9.6%
Return On Equity 8%
Return On Equity - 3 Yr. Avg. 16.5%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 32.5%
Gross Margin - 3 Yr. Avg. 33.8%
EBITDA Margin 9.7%
EBITDA Margin - 3 Yr. Avg. 13.7%
Operating Margin 6.7%
Oper. Margin - 3 Yr. Avg. 11.4%
Pre-Tax Margin 5.3%
Pre-Tax Margin - 3 Yr. Avg. 9.8%
Net Profit Margin 3.3%
Net Profit Margin - 3 Yr. Avg. 6.5%
Effective Tax Rate 36.2%
Eff/ Tax Rate - 3 Yr. Avg. 33.6%
Payout Ratio 74.2%

FLS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FLS stock intrinsic value calculation we used $3833 million for the last fiscal year's total revenue generated by Flowserve Corporation. The default revenue input number comes from 0001 income statement of Flowserve Corporation. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our FLS stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.9%, whose default value for FLS is calculated based on our internal credit rating of Flowserve Corporation, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Flowserve Corporation.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of FLS stock the variable cost ratio is equal to 67.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1008 million in the base year in the intrinsic value calculation for FLS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Flowserve Corporation.

Corporate tax rate of 27% is the nominal tax rate for Flowserve Corporation. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the FLS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for FLS are equal to 35.1%.

Life of production assets of 18.2 years is the average useful life of capital assets used in Flowserve Corporation operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for FLS is equal to 19.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1642.315 million for Flowserve Corporation - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 130.985 million for Flowserve Corporation is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Flowserve Corporation at the current share price and the inputted number of shares is $6.6 billion.

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