Susquehanna Financial Group analyst Robert Barry has increasingly turned positive on Flowserve Corp (NYSE: FLS), citing the setup and the risk/reward, which have turned much more favorable.

Accordingly, Barry upgraded shares of Flowserve from Neutral to Positive but lowered its price target from $50 to $46.

Susquehanna noted that its 2017 and 2018 earnings per share estimates are reduced by 22 percent and 7 percent, respectively, following its post-second-quarter model overhaul. However, the firm said the cuts were based on operational issues confined to one segment, which it believes would be rectified by the management.

The firm continues to expect substantial upside potential for segment margins from near breakeven at second quarter to a high-single-digit percentage over the next 1–3-year period. The firm also thinks the AM sales growth looks stronger on a rising AM backlog, as orders continued to outpace sales.

Additionally, the firm said shorter-cycle OE order activity looks better, given the further improvements in North American energy and global industrial markets. However, the firm cautioned that it wouldn't extrapolate much of the momentum forward at this point, given still choppy end markets.

See also: An Industrial ETF Hitting New Highs

On the stock performance, the firm noted shares of Flowserve were down about 15 percent in the last month and 23 lower in the last six months, underperforming SPX Corp (NYSE: SPXC) and The Industrial Select Sector SPDR Fund (NYSE: XLI).

With the shares trading at about 19 times its 2018 earnings per share estimate or about 1.5–3 times lower relative to where it was one/three months earlier, the firm thinks they are at a reasonable level at/near a trough in the cycle.

"At this point, with estimates and valuation reset lower, we think the focus can shift to what we expect will be a substantial earnings recovery, over the N12M/mid-term periods — driven largely by stable to slowly recovering energy and industrial end markets, and lots of margin selfhelp," the firm said.

Susquehanna recommends gaining exposure at current levels to what it views as one of the highest-quality assets in the global flow control space.

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