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Roper (ROP) to Benefit From Acquisitions Despite Headwinds

Zacks Equity Research
·4 min read

On Apr 20, we issued an updated research report on Roper Technologies, Inc. ROP.

The company is one of the leading designers, manufacturers and distributors of engineered products and solutions as well as software. Roper currently has a $34.2-billion market capitalization. In the past three months, this Zacks Rank #3 (Hold) stock has lost 14.9% compared with the industry’s decline of 22.3%.

 


Factors Favoring Roper

Business Strength: The company has been benefiting from strength across its network software and medical products businesses. Also, its Application Software segment has been experiencing solid momentum from its strong Aderant, Data Innovations and Strata business units. For 2020, the company anticipates organic revenue growth in mid-single digits for both Application Software, and Measurement & Analytical Solutions segments, while that of the Network Software & Systems segment is projected to grow in mid-teens.

Acquired Assets: The company has been investing in acquisitions over time. Notably, it anticipates the buyout of iPipeline Holdings (completed in August 2019) to help it generate significant revenues and free cash flow in 2020. Also, in the same month, the company completed the acquisition of ComputerEase Software, which has been strengthening its Deltek business unit. Notably, in 2019, Roper used $2.4 billion for making acquisitions, surging 87% from the previous year.

Rewards to Shareholders: The company believes in rewarding shareholders handsomely through dividend payouts. In 2019, it distributed $191.7 million as dividends. It is worth mentioning here that Roper increased the quarterly dividend rate by 11% or 5 cents per share to 51.25 cents in November 2019. We believe that healthy cash flow will support it to return more value to shareholders in the quarters ahead.

Factors Working Against Roper

High Operating Expenses: The company has been witnessing high cost of sales and operating expenses over time. For instance, from 2017 to 2019, its cost of sales grew 3.6% (CAGR) and operating expenses jumped 5.2% (CAGR). Also, in 2019, the company’s cost of sales expanded 1.5% year over year to $1,939.7 million and operating expenses rose 2.4% to $1,928.7 million.

High Debts Level: High debts increase financial obligations and, in turn, hurt profitability. Roper’s long-term debts increased 2.4% (CAGR) in the last three years (2017-2019). Exiting 2019, the metric stood at $4,673.1 million. Also, net interest expenses in the year were $186.6 million, up 2.5% year over year.

Earnings Estimate Revision: The company’s earnings estimates have been lowered in the past 30 days. Currently, the Zacks Consensus Estimate for its earnings is pegged at $12.82 for 2020 and $13.44 for 2021, reflecting declines of 3.2% and 2.4% from the respective 30-day-ago numbers.

Key Picks

Some better-ranked stocks are Tennant Company TNC, Broadwind Energy, Inc. BWEN and Acco Brands Corporation ACCO. While Tennant currently sports a Zacks Rank #1 (Strong Buy), Broadwind and Acco Brands carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tennant delivered a positive earnings surprise of 26.60%, on average, in the trailing four quarters.

Broadwind delivered a positive earnings surprise of 10.42%, on average, in the trailing four quarters.

Acco Brands delivered a positive earnings surprise of 19.04%, on average, in the trailing four quarters.

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Roper Technologies, Inc. (ROP) : Free Stock Analysis Report
 
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Tennant Company (TNC) : Free Stock Analysis Report
 
Broadwind Energy, Inc. (BWEN) : Free Stock Analysis Report
 
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Zacks Investment Research