Flowserve Reshapes Debt With Senior Notes Issue & Redemption
Flowserve Corporation FLS, on Sep 21, announced the completion of its $500 million worth of senior notes offering. A day later, the industrial company also communicated the expiration and results of its previously floated tender offer to buy back Euro-denominated senior notes maturing on Mar 17, 2022.
Notably, specifications related to the notes offerings and the tender offers for senior notes were disclosed by Flowserve on Sep 14.
It is worth mentioning here that Flowserve’s shares gained 1.2% yesterday, ending the trading session at $27.06.
Inside the Headlines
As noted, the notes — considered as the company’s senior unsecured obligations — were offered at a price of 99.656% of the principal amount. These debt instruments are due to expire on Oct 1, 2030, and carry a coupon rate of 3.500%. Interest on the offered notes will be paid semi-annually, each on Apr 1 and Oct 1. The first interest payment will be made on Apr 1, 2021.
The issuer has the option to redeem the senior notes before Jul 1, 2030, at a price that is higher of the principal amount and a price calculated by finding the present value of left-over payments for the notes to be redeemed. Notably, the issuer has to pay accrued and unpaid interest, if applicable. Further, the notes can be redeemed on or after Jul 1, 2030, for a value equal to par value plus accrued and unpaid interest.
As disclosed earlier, Flowserve used the funds raised from the notes offering for repurchasing its previously issued senior notes due to mature on Mar 17, 2022. Part of the proceeds, if any left after using for the notes redemption, will be used for satisfying general corporate purposes.
The tender offer for €500 million worth of 1.250% senior notes expired on Sep 22.
The company noted that €163.2 million principal amount of senior notes were validly tendered in the offering. This amount represents 32.64% of the outstanding principal amount of €500 million. For every €1,000 principal amount of notes, the company will pay €1,000 as the purchase consideration. In addition to the purchase price, it will pay any accrued and unpaid interest, if applicable. The notes purchased will be canceled by Flowserve.
We believe that the offerings of senior notes will increase the company’s debts and in turn, might inflate its financial obligations and hurt profitability. Exiting the second quarter of 2020, its long-term debts were at $1,367.5 million, reflecting a 0.8% increase from the previous quarter. However, the repurchasing of notes will be a relief.
Zacks Rank, Estimate Trend and Price Performance
With a market capitalization of $3.5 billion, Flowserve currently carries a Zacks Rank #3 (Hold). The company is likely to gain from a solid backlog, healthy liquidity and cost-control measures in the quarters ahead. However, the pandemic-led uncertainties as well as high costs are major concerns.
In the past three months, the company’s share price has increased 4.9% compared with the industry’s growth of 12.8%.
The Zacks Consensus Estimate for its earnings is pegged at $1.68 for 2020 and $1.61 for 2021, reflecting growth of 15.9% and 10.3% from the 60-day-ago figures. Also, earnings estimates of 44 cents for the third quarter have been raised by 2.3% in the past two months.
Flowserve Corporation Price and Consensus
Flowserve Corporation price-consensus-chart | Flowserve Corporation Quote
Stocks to Consider
Three better-ranked stocks in the industry are Tennant Company TNC, Altra Industrial Motion Corp. AIMC and Roper Technologies, Inc. ROP. While Tennant currently sports a Zacks Rank #1 (Strong Buy), both Altra Industrial and Roper carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for these companies have improved for the current year. Further, earnings surprise for the last reported quarter was 380.00% for Tennant, 76.47% for Altra Industrial and 10.11% for Roper.
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