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Roper Poised on Solid Traction Across Markets, Risks Remain

On Nov 30, we issued an updated research report on Roper Technologies, Inc. ROP.

In the past six months, this Zacks Rank #3 (Hold) stock has yielded a return of 6.6% compared with the industry’s growth of 1.2%.



Existing Scenario

Roper expects sturdier performance of Software, Toll and Traffic, Deltek and Freight Matching businesses to drive near-term revenues of its RF Technology segment. Also, strength in Verathon, GlideScope and SoftWriters businesses will likely boost the top-line performance of Medical and Scientific Imaging, moving ahead. Moreover, improved end-market conditions are expected to drive top-line growth trajectory of the company’s Industrial Technology as well as Energy Systems and Controls segment. Notably, Roper anticipates organic revenue growth of at least 7% in fourth-quarter 2018.

Further, the company expects stronger sales and benefits of its unique niche market strategy to continue driving its profitability. Notably, the company raised its 2018 adjusted earnings guidance from $11.40-$11.56 per share to $11.69-$11.73.

Moreover, the company is steadily improving its cash position. It noted that its asset-light business model calls for minimum capital expenditure and it augments the company’s ability to cash flow at an increasing rate. For 2018, Roper anticipates securing double-digit free cash flow growth.

However, the company is currently troubled by rising cost of sales and operating expenses. As a matter of fact, the company’s cost of sales flared up 7.3% in the first nine months of 2018.  Material price inflation (on account of tariffs) might continue to escalate costs, in turn, hurting Roper’s profitability in the coming quarters.

Further, Roper’s policy of acquiring a large number of companies adds to the integration risks. Frequent acquisitions can negatively impact its balance sheet in the form of a high level of goodwill and intangible assets, which totaled nearly $12.3 billion or 86.3% of total assets as of Sep 30, 2017.

Key Picks

Some better-ranked stocks from the same space are Luxfer Holdings PLC LXFR, IDEX Corporation IEX and Graco Inc. GGG. While Luxfer currently sports a Zacks Rank #1 (Strong Buy), IDEX and Graco carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Luxfer surpassed the Zacks Consensus Estimate thrice in the trailing four quarters, the positive average earnings surprise being 24.27%.

IDEX exceeded the Zacks Consensus Estimate in each of the trailing four quarters, the average positive earnings surprise being 5.80%.

Graco outpaced the Zacks Consensus Estimate twice in the trailing four quarters, the positive average earnings surprise being 4.05%.

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