Donaldson (DCI) Exhibits Strong Prospects Despite Headwinds

·3 min read

Donaldson Company, Inc. DCI is benefiting from its presence in diverse end markets, including construction, mining, aerospace, defense, and food & beverage. Also, a strong product portfolio, solid demand and a focus on innovation are other tailwinds for DCI.

Mobile Solutions’ sales are driven by growth in On-Road and Off-Road sales, supported by elevated levels of medium and heavy-duty equipment production. Aftermarket sales are benefiting from improved global supply-chain conditions. Sales growth in industrial filtration solutions and aerospace and defense is aiding Industrial Solutions sales.

The company’s acquisition of Isolere Bio (February 2023) enabled it to create leading separation and filtration solutions for emerging genetic-based drugs. Also, the buyout of Purilogics, LLC (June 2022) strengthened DCI’s life sciences portfolio by leveraging the acquired entity’s unique product offerings. The acquisition of Solaris Biotechnology (in November 2021) strengthened its presence across several end markets, including food and beverage, biopharma and other major life sciences. Also, DCI acquired Pearson Arnold Industrial Services in the same month. Acquired assets are strengthening DCI’s top line.

DCI’s efforts to reward its shareholders through dividend payments and share repurchases are noteworthy. Donaldson paid out dividends worth $110.1 million and repurchased shares worth $170.6 million during fiscal 2022 (ended July 2022). In the first six months of fiscal 2023 (ended Jan 31, 2023), its dividend payments totaled $56.2 million. The company bought back shares worth $115.2 million in the same period. The board also announced a 4.5% hike in its quarterly dividend rate in May 2022.

However, Donaldson’s Life Sciences Segment is experiencing weakness due to continued disk drive market weakness. For fiscal 2023, management anticipates sales in the Life Sciences Segment to decline 5-9%. Supply-chain issues are added concerns for the company. High costs of raw materials, labor and freight are also weighing on Donaldson. For fiscal 2023, the company expects continued pressures from the high costs of raw materials, freight and labor.

Given DCI’s global presence, it is exposed to various environmental laws and regulations in the countries it operates. Also, Donaldson remains vulnerable to foreign currency and geopolitical issues. In second-quarter fiscal 2023, foreign currency translation had a negative impact of 4.3% on sales. The company anticipates foreign exchange headwinds to have an adverse impact of approximately 4% on its sales in fiscal 2023 (ending July 2023).

In the past six months, this current Zacks Rank #3 (Hold) stock has gained 23.2% compared with the industry’s rise of 4.7%.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked companies from the Industrial Products sector are discussed below:

Deere & Company DE presently sports a Zacks Rank #1 (Strong Buy). DE’s earnings surprise in the last four quarters was 4.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.

In the past 60 days, Deere & Company’s earnings estimates have increased 8.7% for fiscal 2023. The stock has rallied 9.8% in the past six months.

Ingersoll Rand Inc. IR presently carries a Zacks Rank #2 (Buy). IR’s earnings surprise in the last four quarters was 8.5%, on average.

In the past 60 days, Ingersoll Rand’s earnings estimates have increased 1.7% for 2023. The stock has gained 12.4% in the past six months.

AGCO Corporation AGCO presently has a Zacks Rank of 2. AGCO’s earnings surprise in the last four quarters was 13.4%, on average.

In the past 60 days, AGCO’s earnings estimates have increased 2.2% for 2023. The stock has rallied 21.7% in the past six months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Deere & Company (DE) : Free Stock Analysis Report

AGCO Corporation (AGCO) : Free Stock Analysis Report

Ingersoll Rand Inc. (IR) : Free Stock Analysis Report

Donaldson Company, Inc. (DCI) : Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research