3 Companies That Will Benefit from Global Industrialization

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With a larger portion of the world moving into the industrial age three “applied industrial solution” companies stand to benefit, IDEX (NYSE: IEX), Flowserve (NYSE: FLS), and Gorman-Rupp (NYSEMKT: GRC). Here’s why:

Infrastructure

As cities modernize in emerging economies, the need for the transportation of essential fluids, such as water, will increase. If a growing desert city loses water pressure; meters can help with determining the loss and location.

Fluids and metering make up the largest percentage (41%) of IDEX’s revenue. Metering helps IDEX’s customers monitor and control waste. For example, the company’s Liquid Controls Group sells meters that measure fluids and gases. In its PulsaFeeder division, water treatment pumps come equipped with devices that monitor the level of chemical treatments in the water.

Twenty percent of Flowserve’s revenue comes from the infrastructure related segments power generation (16%) and water management (4%). For example, Flowserve provides pumping solutions for boilers in conventional steam power generation. Another example includes the 2009 acquisition of Swiss company Calder AG, providing Flowserve with interesting capabilities pertaining to desalination—designing pump applications for the “reverse osmosis” process.

Gorman-Rupp’s infrastructure year to date sales experienced mixed results for a variety of reasons. Drought in the west increased commodity prices elevating “cash flow benefit,” thus boosting sales for sprinkler and irrigation pumps for agriculture. Municipal infrastructure sales declined due to lower pump shipments to flood control projects and lower municipal budgets. Examples of municipal infrastructures solutions include pressure boosting stations, large industrial pumps, and pipes to get water to homes.

Health Care

Health care availability will rise as the rest of the world industrializes.

This will boost demand for medical fluid pumps and lasers in IDEX’s health and science technologies segment.

Flowserve sells valves designed to withstand chemicals used in medicine production, to the pharmaceutical industry in their general industries segment.

Gorman-Rupp’s Industries Division manufactures centrifugal and oscillating pumps for the medical industry.

Energy

The need for efficient fluid transfer and metering increases with the global appetite for energy. Natural gas and oil needs to be pumped and measured. With more people needing energy, components that go into their extraction will increase in demand.

Twenty three percent of IDEX’s 2011 fluids and metering revenue came from energy, and over half of that came from international markets. For example, IDEX’s Corken division sells pumps and compressors designed to move flammable liquids and gas.

Forty percent of Flowserve’s 2011 revenue comes from energy. Flowserve provides pumping solutions for extraction, refinement, transportation, and storage.

Gorman-Rupp’s 2010 acquisition of National Pump increased exposure in pumps designed specifically for the petroleum business. Gorman-Rupp experienced strong petroleum pump sales in 2012 according to its latest form 10-Q. Interestingly, the demand for natural gas pumps declined.

Safety

The need for safety will rise along with affluence and education stemming from global industrialization. Also, as fire and safety equipment in mature economies age, the need for replenishment increases. Growing cities will need up to date equipment for police, fire, and ambulances. Refineries will need fire suppression systems.

IDEX makes safety equipment such as pumps for fire trucks and jaws of life. A large replenishment effort for safety equipment in North America contributed to a 15% gain as of June 30. This segment showed the largest gain (13%) in the Oct. 22 earnings announcement.

Flowserve provides industrial safety solutions. For example, it performs safety assessments of industrial fire suppression systems to determine their pumping needs. For example, if a substandard refinery’s fire suppression system needs replacing they can inform the refinery managers of the exact pumping and piping needs.

Gorman-Rupp’s Patterson and Mansfield divisions manufacture safety systems such as fire hydrants and suppression applications for buildings “to meet a growing global demand,” according to the 2011 annual report. Fire protection sales remain strong year to date.

I think IDEX, Flowserve, and Gorman-Rupp will outperform the market over the long-term.  As the world industrializes, the aforementioned companies will benefit from infrastructure construction, increasing availability of health care, growing energy needs, and the need to do so safely.

 


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