4 Reasons Why You Should Avoid Donaldson (DCI) Stock Now
Donaldson Company, Inc.’s DCI recent operational performance failed to impress investors due to tough market conditions and other challenges, which are likely to hurt its earnings in the near term.
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The presently Zacks Rank #4 (Sell) player has a market capitalization of $6.7 billion. In the past year, the stock has lost 19.9% compared with industry’s decline of 4.6%.
Let’s discuss the factors that might continue taking a toll on Donaldson.
Softness in End Market: Donaldson’s third quarter fiscal 2022 (ended April 2022) was adversely impacted by a 9% year-over-year decline in On-Road business. DCI expects sales in On-Road business to decline in low-single digits from the last fiscal year’s reported figure for fiscal 2022 (ended July 2022). Supply-chain issues and raw material inflation might continue to affect its business in the quarters ahead.
Escalating Costs and Expenses: DCI’s rising cost of sales and expenses pose a threat to its bottom line. Donaldson’s cost of sales increased 15.2% year over year in the fiscal third quarter. DCI’s gross margin for the fiscal third quarter witnessed an adverse impact of 220 bps due to high costs of raw materials, labor and freight. Management expects the gross margin to be down 150-200 basis points in fiscal 2022 from the last fiscal year’s reported number.
Unfavorable Forex: Donaldson is exposed to adverse foreign currency movements, given its widespread presence in the international markets. For instance, in third-quarter fiscal 2022, forex woes affected DCI’s sales 2.9% year over year. For fiscal 2022, management predicts an adverse impact of 3% on sales from unfavorable foreign currency translation.
Southbound Estimate Trend: In the past 60 days, the Zacks Consensus Estimate for fourth-quarter fiscal 2022 earnings has been revised 0.4% downward.
Stocks to Consider
Some better-ranked companies from the industrial products sector are discussed below:
Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1 (Strong Buy). AIT delivered a trailing four-quarter earnings surprise of 22.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.
AIT’s earnings estimates have increased 5.8% for fiscal 2023 (ending June 2023) in the past 60 days. Its shares have rallied 26.5% in the past year.
Greif, Inc. GEF presently has a Zacks Rank #2 (Buy). GEF delivered a trailing four-quarter earnings surprise of 22.9%, on average.
GEF’s earnings estimates have increased 0.4% for fiscal 2022 (ending October 2022) in the past 60 days. Its shares have risen 11.2% in the past year.
Valmont Industries, Inc. VMI presently has a Zacks Rank of 2. VMI’s earnings surprise in the last four quarters was 13.7%, on average.
In the past 60 days, Valmont’s earnings estimates have increased 3.8% for 2022. The stock has rallied 17.2% in the past year.
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