Roper Technologies, Inc. ROP has failed to impress investors with its recent operational performance, owing to the challenging end-market conditions amid the coronavirus outbreak, which are expected to negatively impact its earnings.
The Zacks Rank #4 (Sell) company has a market capitalization of $40.8 billion. In the past month, it has lost 2.7% compared with the industry’s decline of 5.5%.
Let’s delve into the factors that might take a toll on the firm.
Low Demand Environment: In the quarters ahead, the coronavirus outbreak is likely to have an adverse impact on demand for products and project timings across most of Roper’s segments. For 2020, the organic sales of the company’s Application Software segment are anticipated to be up or down in a low-single-digit range on account of lower anticipated bookings for its software products. Also, for the year, the company anticipates its Process Technologies segment’s organic sales to fall 20-25% due to continued weakness in upstream oil & gas businesses.
Escalating Costs & Expenses: Roper has been experiencing rising costs and expenses over time. For instance, in the last three years (2017-2019), its cost of sales recorded an increase of 3.6% (CAGR) and operating expenses jumped 5.2% (CAGR). Also, in the first quarter of 2020, its cost of sales, and selling, general and administrative expenses expanded 3.6% and 9.3%, respectively, on a year-over-year basis. We believe that rise in costs and expenses, if unchecked, might continue to prove detrimental to its finances in the quarters ahead.
High Debt Level: The company’s highly leveraged balance sheet also remains concerning. For instance, in the last three years (2017-2019), its long-term debt increased 2.4% (CAGR). Exiting the first quarter of 2020, its long-term debt stood at $4,674.2 million. In addition, the company's ability to meet its debt obligations based on its current income has declined over the past quarter. Notably, its times interest earned ratio is 12.2, lower than 12.9 recorded at the end of the previous quarter. 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 Astec Industries, Inc. ASTE, AZZ Inc. AZZ and Chart Industries, Inc. GTLS. While Astec Industries currently sports a Zacks Rank #1 (Strong Buy), AZZ and Chart Industries carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Astec Industries delivered a positive earnings surprise of 6.68%, on average, in the trailing four quarters.
AZZ delivered a positive earnings surprise of 6.17%, on average, in the trailing four quarters.
Chart Industries delivered a positive earnings surprise of 1.41%, on average, in the trailing four quarters.
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