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Dover to Buy Systech, Eyes Growth in Brand Protection Market

Zacks Equity Research

Dover Corporation DOV has entered into an agreement to acquire Systech International, a leading software and solutions provider for traceability of product, regulatory compliance and brand protection. The transaction is likely to close in the current quarter, subject to customary closing conditions. However, terms of the deal have been kept under wraps.

Post the deal closure, Systech will be part of Dover’s Markem-Imaje business unit. Dover’s wholly-owned subsidiary Markem-Imaje is a global manufacturer of product identification and traceability solutions under its Imaging and Identification segment.

Systech’s Unique Brand Protection Techniques

Headquartered in Princeton, NJ, Systech offers an exclusive integrated Brand Protection Suite for compliance and brand protection applications, which includes traceability, serialization, anti-counterfeiting and anti-diversion solutions for global pharmaceutical and FMCG manufacturers.  Notably, the solution has aided FMCG and pharmaceutical manufacturers to meet rising customer demand for product traceability, safety and security. This apart, Systech’s unique product authentication solution offers higher level of protection with lower cost and complexity.

How Does it Benefit Dover?
The latest acquisition will boost Markem-Imaje's product identification and traceability solutions portfolio with high-end software and services for the growing global brand protection market. In fact, Markem-Imaje's business will benefit from Systech's recurring software and service revenues from its cloud-based software solutions. Together Systech and Markem-Imaje's software and service solutions will create a software and service organization, which will drive growth by cross-leveraging each company's respective channels and global service infrastructure.

Systech’s innovative software solutions and Markem-Imaje's global reach and service excellence will build a market leader in the brand protection market.  Further, the deal supports Dover’s capital-deployment strategy to invest in attractive core markets for sustainable and profitable growth by creating shareholders value.

Dover has a long tradition of making successful acquisitions in diverse end markets. The company has completed the acquisition of All-Flo Pump Co during second-quarter 2019, which contributed to the Fluids segment margins in the third quarter. In the September-end quarter, the segment reflected the benefits from retail fueling, margin improvement and acquisitions.

Upbeat Guidance Boosts Dover’s Prospects

Dover’s fourth-quarter 2019 results are likely to reflect its robust order backlog as well as execution of margin targets. In addition, impressive performance in the Engineered Systems and Fluids segments, along with benefits from cost-containment actions, footprint-optimization projects and retail refrigeration, are likely to have negated the impact of soft demand in the Refrigeration & Food Equipment segment.

The company projects adjusted EPS at $5.82-$5.85 for 2019. The mid-point of the guidance suggests 17% year-over-year growth. The guidance reflects solid order backlog across all business segments, productivity and cost initiatives, and execution of margin targets.

Dover’s cost-reduction initiatives are likely to boost its margins. The company has executed restructuring programs to better align costs and operations with the current market conditions through targeted facility consolidations, headcount reduction and other measures. Moreover, the company will gain from product digitization, e-commerce, new product development, and inorganic investment in core business platforms.

Share Price Performance

The stock has appreciated around 53.2% over the past year, outperforming the industry’s growth of 31.9%.

Zacks Rank & Stocks to Consider

Dover currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Cintas Corporation CTAS, Chart Industries, Inc. GTLS and DXP Enterprises, Inc. DXPE, each carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Cintas has an expected earnings growth rate of 15.6% for the current year. The stock has rallied 56% over the past year.

Chart Industries has a projected earnings growth rate of 73.6% for 2020. The company’s shares have gained 6% over the past year.

DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In a year’s time, the stock has appreciated 37.3%.

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