Cleaner Energy And Rising Water Demand Will Create Enduring Opportunities

Key Takeaways

• Increased demand from energy transition and water infrastructure projects is driving strong order growth, backlog, and long-term revenue visibility for Flowserve.
  
• Shift toward higher-margin aftermarket services, operational improvements, and strategic acquisitions are expected to expand margins and stabilize earnings.
  
• Heavy dependence on fossil fuel sectors and lagging innovation expose the company to risks from energy transition, regulatory pressures, competitors, and unpredictable long-term demand.

Catalysts

Designs, manufactures, distributes, and services industrial flow management equipment in the United States, Canada, Mexico, Europe, the Middle East, Africa, and the Asia Pacific.

• The accelerating global investment in cleaner energy infrastructure and decarbonization initiatives is fueling sustained demand for Flowserve’s flow control and fluid handling solutions, with robust orders in nuclear, LNG, and carbon capture projects. This stream of project awards, including record nuclear bookings above $100 million for three consecutive quarters, is positioned to drive revenue growth and backlog conversion in coming years.
  
• Rising investment in global water infrastructure due to increasing water scarcity is translating to heightened demand for Flowserve’s pumps and valves, with backlog strength and elevated project funnels in general industry and water treatment, supporting multiyear revenue visibility and order growth.
  
• Flowserve’s transformation toward higher-margin, recurring aftermarket services—now representing over half of sales—is supporting consistent aftermarket bookings exceeding $600 million per quarter and should drive net margin expansion and more stable earnings throughout economic cycles.
  
• The company’s operational excellence initiatives, especially the 80/20 complexity reduction and the Flowserve Business System adoption across all product lines, are expected to deliver at least 200 basis points of margin expansion by 2027 by reducing cost, improving mix, and enhancing pricing power, directly benefiting net margins and profitability.
  
• Continued portfolio optimization through strategic M&A—such as the Mogas acquisition, which was immediately accretive to earnings and margin—along with disciplined divestment of lower-margin businesses, is positioning Flowserve to accelerate adjusted operating income and earnings per share growth over the next several years.

Flowserve Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Flowserve compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Flowserve's revenue will grow by 6.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.1% today to 10.6% in 3 years time.
• The bullish analysts expect earnings to reach $586.6 million (and earnings per share of $4.39) by about July 2028, up from $282.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 20.3x on those 2028 earnings, down from 24.9x today. This future PE is lower than the current PE for the US Machinery industry at 22.9x.
• Analysts expect the number of shares outstanding to decline by 0.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.03%, as per the Simply Wall St company report.

Flowserve Future Earnings Per Share Growth

Risks

• Flowserve’s heavy reliance on oil and gas and petrochemical sectors makes it highly vulnerable to the accelerated global transition away from fossil fuels, which could drive permanent declines in demand for its core products and result in lower long-term revenue growth.
  
• Increasing regulatory and ESG pressures on carbon-intensive end markets may cause Flowserve’s primary customers to cut or delay capital expenditures in legacy energy infrastructure, putting future order volumes and top-line growth at risk.
  
• Despite emphasizing operational improvements and mitigation strategies for new tariffs, the company faces substantial gross annual tariff exposure and admits to margin timing mismatches and possible price elasticity limits—creating ongoing risk to net margins and earnings if tariff impacts cannot be fully offset.
  
• Growing competition from low-cost global players and the shift toward more advanced, integrated fluid handling systems threaten Flowserve’s traditional portfolio; failure to match digital transformation and innovation pace could result in margin pressure and shrinking market share, impacting both revenues and earnings quality.
  
• Prolonged cyclicality and possible project deferrals in key heavy industries, especially as decarbonization policies evolve, could result in unpredictable revenue streams, weaker backlog visibility, and less pricing power in the long term.

Valuation

• The assumed bullish price target for Flowserve is $73.74, which represents two standard deviations above the consensus price target of $64.7. This valuation is based on what can be assumed as the expectations of Flowserve's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $75.0, and the most bearish reporting a price target of just $60.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $5.5 billion, earnings will come to $586.6 million, and it would be trading on a PE ratio of 20.3x, assuming you use a discount rate of 8.0%.
• Given the current share price of $53.87, the bullish analyst price target of $73.74 is 26.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.