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Dover (DOV) Appreciates 29% YTD: What's Driving the Rally?

Zacks Equity Research

Shares of Dover Corporation DOV have rallied 29.2% year to date, aided by its strong second-quarter 2019 earnings results and an upbeat outlook for the ongoing year. Also, improved performance in the Engineered Systems and Fluids segments, robust order backlog, cost-reduction initiatives, as well as restructuring programs are some of its key growth drivers. The company has also outperformed its industry’s rise of roughly 20% during the same time frame.

Dover, a Zacks Rank #2 (Buy) stock, has a market cap of roughly $13.2 billion. The company has an expected long-term earnings per share growth rate of 11.5%.

Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:

Earnings Beat Consensus Mark in Q2: Dover reported adjusted earnings per share from continuing operations of $1.56 in the June-end quarter. The figure improved 20% year over year as well as beat he Zacks Consensus Estimate of $1.55.
Upbeat Outlook: Dover tightened its adjusted earnings per share guidance to $5.75-$5.85 from the prior estimate of $5.65-$5.85 for full-year 2019, backed by encouraging first-half results. This was driven by productivity and cost initiatives, strong demand and solid backlogs. Further, robust order backlog, augmented by customers wins and execution of margin targets, will likely aid third-quarter 2019 results.
Healthy Growth Projections: The Zacks Consensus Estimate for Dover’s current-year earnings is currently pegged at $5.84, reflecting year-over-year growth of 17.5%. The same for 2020 is pinned at $6.23, indicating a year-over-year improvement of 6.7%.
Positive Earnings Surprise History: The company outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average positive earnings surprise being around 6.9%.

Growth Drivers in Place

Throughout 2019, impressive performance in the Engineered Systems and Fluids segments, together with strong organic growth, benefits from cost-containment actions, footprint-optimization projects, and retail refrigeration are expected to negate the impact of soft demand in the Refrigeration & Food Equipment segment.

Dover also expects to benefit from its targeted cost-reduction initiatives this year, which is likely to boost 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.

Dover also has a long tradition of making successful acquisitions in diverse end markets. The company concluded the All-Flo Pump Co buyout during the April-June quarter, which is likely to be accretive to the Fluids segment’s margins this year.

Moreover, Dover is progressing well with its efforts to simplify the portfolio and focus on markets with growth prospects. In sync with this, it successfully completed the spin-off of the upstream energy businesses — Apergy — last May. Following the spin-off, the company no longer owns the Energy segment and has three reportable segments. Consequently, Dover's core platforms, which compete in lower volatility industrial markets, will be well poised to provide a strong foundation for reinvestment, long-term sustainable revenues, earnings growth and strong free cash flow generation.

Dover Corporation Price and Consensus

Dover Corporation Price and Consensus
Dover Corporation Price and Consensus

Dover Corporation price-consensus-chart | Dover Corporation Quote

Other Socks to Consider

Some other top-ranked stocks in the Industrial Products sector are Unifirst Corporation UNF, Albany International Corporation AIN and Cintas Corporation CTAS. While Unifirst and Albany International flaunt a Zacks Rank #1 (Strong Buy), Cintas carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Unifirst has a projected earnings growth rate of 15.17% for the current year. The stock has gained 8.6% in a year’s time.

Albany International has an estimated earnings growth rate of 32.3% for 2019. The company’s shares are up 8.3% in the past year.

Cintas has an expected earnings growth rate of 11.15% for the ongoing year. The stock has appreciated 25.6% over the past year.

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