The bank reckons orders will improve in 2018, not least due to higher oil prices, and that cost-savings under the new chief executive could be more than the market is expecting.
"Relentless energy demand should act as the catalyst for increased energy infrastructure spend and this could be compounded by an equipment upgrade cycle," said analyst Scott Cagehin.
Oil price rises..
He said that the oil price rise should start to generate higher capital expenditure in the sector too.
"We believe the outlook for Rotork’s upstream oil & gas exposure (16% of total 2016 revenues) is improving," he said.
"We believe that the mid/downstream oil & gas (36% of total 2016 revenues) outlook is also positive."
A new man at the helm..
Last week, Rotork named Kevin Hostetler as its new chief executive following the departure of Peter France in July last year. He will assume the role from March.
Hostetler led a three-year turnaround at flow control business FDH Velocitel, a private equity backed telecoms business in the US, and delivered “transformational growth” for shareholders at flow control business IDEX Corp, the firm had said.
Cagehin said that Hostetler's CV suggested he was more than up to leading a successful cost restructuring at the group.
"Although no actual numbers have been provided we believe the programme could be substantial and could drive improving margins whilst providing capital for future growth," said the analyst.
"Potential benefits of such a cost savings plan could be greater than the market is discounting. We expect it could generate positive incremental news through 2018."
Increased earnings forecasts..
HSBC increased its earnings forecasts by 5% for 2018 and by 10% for 2019 and it assumes around £14mln of cost savings in the next two years, which should lead to share price appreciation.
These new forecasts position the broker 3% ahead of 2018 and 8% ahead of 2019 consensus, it said.
It has hiked its target price to 335p, from 250p previously, which, it said, implied 17.4% upside from current levels.
The recommendation upgrade (to buy) comes as the broker believes there will be more upside driven by mid/downstream oil and gas market recovery.
Its target price equates to an enterprise value/EBITDA ratio of a multiple of 15.7.
Rotork shares added 2.47% to 298.8p in London.