Wednesday, May 26, 2021

SPX Flow Continues To Build A More Positive Case For Itself

 

As a long-term investor, I try not to spend too much time fretting over short-term price movements, but I do think the recent performance of SPX FLOW (FLOW) highlights the impact valuation and expectation can have on performance. SPX FLOW shares are up modestly (around 7%) since my last update, lagging the mid-teens performance of the larger industrial group, despite what I thought was a strong Investor Day presentation and a very good set of first quarter results.

I like management’s “80/20” strategic plan and the decision to focus more attention on growth opportunities in the Nutrition & Health and Industrial segments, as well as the decision to deploy more capital into M&A. I think management’s target of mid-teens adjusted operating margins in 2023 could be a little aggressive, but I do think the company is on a better path now as it transitions from a turnaround story to a quality (if cyclical) growth story.

Between the Investor Day presentation, the first quarter results, and trends I see across the company’s end-markets, I’m more comfortable with more bullish assumptions, and I think M&A could push the longer-term revenue growth rate closer to the high end of the mid-single-digits. Assuming that FCF margins move into the low double-digits (and there could be upside here if management really delivers on efficiency efforts), I think there’s a potential high single-digit long-term annualized return here, and that’s pretty attractive on a relative basis.

 

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SPX Flow Continues To Build A More Positive Case For Itself

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