On Mar 7, 2014, we issued an updated research report on Dover Corporation (DOV). This diversified machinery producer reported fourth-quarter 2013 adjusted earnings of $1.28 per share, up 17% year over year and in line with the Zacks Consensus Estimate. The results benefited from organic growth across all segments, along with strength in refrigeration and food solutions as well as in downstream energy markets.
Dover’s expansion has been mainly driven by acquisitions. In fiscal 2013, the company made 10 acquisitions for $323 million. In Nov 2013, Dover completed its previously announced acquisition of Italy-based Finder for $145 million. The move was aimed to strengthen the position of the Pump Solutions Group, an operating unit within Dover’s Engineered Systems segment, and increase the company’s global footprint. In early 2014, Dover acquired Italy-based MS Printing Solutions S.r.l. This acquisition will facilitate the company to expand beyond fast moving consumer goods and industrial markets to the textile sector.
In order to simplify its business profile and increase focus on its key industrial growth spaces, Dover signed a definitive agreement to sell DEK Printing Machines unit (:DEK) to Hong Kong-listed ASM Pacific Technology. The sale will likely close by mid-2014 and is expected to generate cash proceeds of $170 million, apart from a contingent consideration of $30 million that is subject to customary post-closing adjustments.
In addition, Dover has realigned its businesses into a new segment structure including four segments: Dover Energy, Dover Engineered Systems, Dover Fluids and Dover Refrigeration & Food Equipment. This will facilitate it to focus better on key markets, thereby improving productivity.
Dover expects earnings in the range of $4.60–$4.80 per share and revenue growth of 5%–6% in fiscal 2014. We believe that the company will continue to benefit from geographic expansion, product innovation, bookings and orders growth as well as enhanced customer service.
In spite of these positives, Dover’s revenues and margins could suffer due to the rising macroeconomic uncertainty and limited credit availability. The benefits of volume growth and ongoing productivity initiatives will be largely offset by amortization costs related to 2013 acquisitions.
Furthermore, the company has significant exposure to domestic oil and gas as well as rig counts. Dover expects the energy business to grow in 2014, given the improvement in drilling and artificial lift businesses in North American markets. At the same time, U.S. rig counts are expected to be flat. Hence, it seems that the company will face some difficulty in matching its guidance.
Dover currently carries a Zacks Rank #4 (Sell).
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