Dover Corporation DOV looks promising at the moment on stellar earnings performance during the December-end quarter, an upbeat outlook, improved performance by the Engineered Systems and Fluids segments, strong demand and solid backlog as well as cost-reduction initiatives. We are optimistic about the company’s prospects and believe this is the right time to add the stock to your portfolio, as it is poised to carry the bullish momentum ahead.
Factors Favoring Dover
Earnings Top Consensus Mark in Q4
Dover reported fourth-quarter 2019 adjusted earnings per share from continuing operations of $1.54. The figure improved 7.7% from the prior-year quarter’s $1.43 per share. Earnings also beat the Zacks Consensus Estimate of $1.46.
Dover’s first-quarter 2020 results are likely to reflect its robust order backlog as well as execution of margin targets. In addition, Engineered Products is expected to grow on continued strength in waste handling, vehicle services, and aerospace and defense business. Imaging & Identification is likely to grow on improved outlook in Asia for both marking and coding and textile printing. Refrigeration & Food Equipment is also anticipated to grow modestly this year.
The company projects current-year adjusted EPS at $6.20-$6.40 compared with the prior estimate of $5.75-$5.85. The guidance reflects robust order backlog across all business segments, productivity and cost-containment initiatives, and execution of margin targets.
Positive Earnings Surprise History
Dover outpaced the Zacks Consensus Estimate over the trailing four quarters, the average positive beat being 5.36%.
The stock has gained around 21.3% over the past year, outperforming the industry’s growth of 13.2%.
Strong Earnings Growth Prospect
The Zacks Consensus Estimate for Dover’s current-year earnings is currently pegged at $6.33, suggesting year-over-year growth of 6.7%. Also, the stock has a long-term expected earnings per share growth rate of 11.5%.
Looking at Dover’s price-to-earnings ratio, its shares are underpriced at the current level, which seems attractive for investors. The company has a trailing P/E ratio of 18.5, lower than the industry average of 22.3.
Growth Drivers in Place
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.
Dover has a long tradition of making successful acquisitions in diverse end markets. In 2019, the company acquired three businesses for a total consideration of $216.4 million. The company made these acquisitions to complement and expand upon the existing operations within the Fueling Solutions and Pumps & Process Solutions segments. This January, Dover completed the acquisition of Systech International. The buyout supports Dover’s marking and coding portfolio, and expands software and service revenues within Markem-Imaje. The deal is expected to be accretive to the first-year adjusted EPS.
In addition, the company will gain from product digitization, e-commerce, new product development and inorganic investment in core business platforms. The company has initiated several growth and productivity capital projects, and targets investments in can forming and heat-exchanger businesses to capture growing volumes and upgrade competitive capabilities.
Zacks Rank & Other Stocks to Consider
Dover currently carries a Zacks Rank #2 (Buy)
A few other top-ranked stocks in the Industrial Products sector are Northwest Pipe Company NWPX, Sharps Compliance Corp SMED and Graco Inc. GGG. All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.
Northwest Pipe has an expected earnings growth rate of 19.5% for the current year. The stock has appreciated 34% over the past year.
Sharps Compliance has an estimated earnings growth rate of a whopping 767% for the ongoing year. In a year’s time, the company’s shares have gained 39%.
Graco has a projected earnings growth rate of 4.3% for 2020. The company’s shares have rallied 19% over the past year.
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Graco Inc. (GGG) : Free Stock Analysis Report
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