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Donaldson Exhibits Bright Prospects Amid Pandemic Scare

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Zacks Equity Research
·3 min read
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On Oct 6, we issued an updated research report on Donaldson Company, Inc. DCI.

In the past three months, this Zacks Rank #3 (Hold) stock has returned 9.9% compared with the industry’s growth of 17.3%.

Present Scenario

Donaldson has been benefiting from its strong product portfolio, focus on innovation and supply-chain optimization, expanding e-commerce business as well as growth investments. Also, stability across the company’s manufacturing replacement parts business, along with strength in the process filtration business in the food and beverage market, will likely prove beneficial in the quarters ahead.

Further, the company’s ability to generate healthy cash flows allows it to effectively deploy capital for repurchasing shares and paying out dividend. In fiscal 2020 (ended Jul 31, 2020), its free cash flow recorded an increase of 35.4% to $264.6 million, on a year-over-year basis. The company remains committed to rewarding shareholders handsomely through dividend payments and share buybacks. Notably, for fiscal 2021 (ending July 2021), total share buybacks will likely be a minimum of 1% of its outstanding shares.

However, weakness across its end-markets on account of the coronavirus outbreak-led issues weighs on its top line in the near term. For fiscal 2021, Donaldson kept its projections suspended. It expects sales in the first half of fiscal 2021 to decline on a year-over-year basis.

Moreover, Donaldson’s high-debt profile poses a concern. For instance, in the last five fiscal years (2016-2020), its long-term debt rose 11.9% (CAGR). Notably, the metric was $617.4 million at the end of fiscal 2020, reflecting growth of 5.6% on a year-over-year basis. Also, exiting fiscal 2020, its cash and cash equivalents balance were just $236.6 million. Further increase in debt levels can raise the company’s financial obligations.

Stocks to Consider

Some better-ranked stocks from the Zacks Industrial Products sector are II-VI Incorporated IIVI, Graphic Packaging Holding Company GPK and NortonLifeLock Inc. NLOK. While II-VI currently sports a Zacks Rank #1 (Strong Buy), Graphic Packaging and NortonLifeLock carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

II-VI delivered a positive earnings surprise of 64.90%, on average, in the trailing four quarters.

Graphic Packaging delivered a positive earnings surprise of 16.53%, on average, in the trailing four quarters.

NortonLifeLock delivered a positive earnings surprise of 59.96%, on average, in the trailing four quarters.

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Donaldson Company, Inc. (DCI) : Free Stock Analysis Report
 
IIVI Incorporated (IIVI) : Free Stock Analysis Report
 
Graphic Packaging Holding Company (GPK) : Free Stock Analysis Report
 
NortonLifeLock Inc. (NLOK) : Free Stock Analysis Report
 
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