SPX Flow Executing On Cost Efficiency And Has Meaningful M&A Upside

I was concerned about the fairly rapid improvement in valuation when I last wrote about SPX Flow (FLOW) and noted that further upside was going to be more tied to real evidence of operating improvement. To that end, while SPX Flow didn’t have a perfect second half of 2020, management made very credible progress on cost efficiency targets, and that helped SPX Flow almost double the performance of the broader industrial space, sending the shares almost 50% higher.

SPX Flow enters 2021 with good leverage to improving short-cycle industrial markets and more stable (but growing) food/beverage customers. Management is targeting another round of cost cuts (which could impact operating margins by 150bp) and enters the year with meaningful M&A capacity. Valuation does look pretty robust, but with relatively better operating margin improvement potential and M&A upside, I’m not really expecting to see SPX Flow trade cheaply in the near term.

 

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SPX Flow Executing On Cost Efficiency And Has Meaningful M&A Upside