Roper (ROP) Gains From End-Market Strength, Risks Persist
Roper Technologies, Inc. ROP stands to benefit from strength across its Deltek, Aderant, CliniSys and Data Innovations businesses, driven by strong demand for its products and solutions in the quarters ahead. Solid momentum across the company’s Foundry, iPipeline and Inovonics businesses, backed by improving end-market conditions, strong customer retention and network expansion, bodes well. Also, its focus on product innovations, growth investments and strong operational execution are likely to drive its performance. For 2022, Roper anticipates organic sales to increase 6-8% year over year.
The company intends to acquire assets to strengthen its businesses and expand customer base. For instance, its acquisition of American LegalNet (January 2022) is expected to aid its Aderant business to provide comprehensive software solutions to its customers in the legal industry. Some of the notable acquisitions made by ROP in 2020 are Team TSI Corporation, WELIS, Impact Financial Systems, Vertafore and EPSi. Acquisitions positively contributed 9% to Roper’s sales growth in 2021.
The company’s ability to generate strong cash flows allows it to effectively deploy capital for making acquisitions and paying out dividends. In fourth-quarter 2021, it generated adjusted free cash flow of $529 million, reflecting growth of 22.7% sequentially. Regarding rewards to shareholders, the company paid out dividends of $236.4 million in 2021, reflecting an increase from $214.1 million in the previous year. Also, Roper hiked the quarterly dividend rate by 10% to 62 cents in November 2021.
However, the company has been witnessing rising costs and expenses over time. In fourth-quarter 2021, its cost of sales and its selling, general and administrative expenses jumped 13.7% and 7.2%, respectively, on a year-over-year basis. Supply chain constraints and raw-material inflation are likely to be headwinds in the near term. Escalation in costs and operating expenses, if not controlled, can affect its margins and profitability, going forward.
Roper’s high-debt profile also poses a concern. In the last three years (2019-2021), its long-term debt rose 15.1% (CAGR). Its long-term debt balance was $7,122.6 million at the end of 2021. Any further increase in debt levels can raise the company’s financial obligations.
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In the past three months, this Zacks Rank #3 (Hold) stock has lost 9.8% compared with the industry’s decline of 14.8%.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
Nordson Corporation NDSN presently carries a Zacks Rank #2 (Buy). The company delivered a four-quarter earnings surprise of 9.85%, on average.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Nordson’s earnings estimates have increased 1.1% for fiscal 2022 (ending October 2022) in the past 60 days. Its shares have lost 20.1% in the past three months.
Standex International Corporation SXI presently has a Zacks Rank #2. Its earnings surprise in the last four quarters was 5.85%, on average.
In the past 60 days, Standex’s earnings estimates have increased 5.9% for fiscal 2022 (ending June 2022). SXI’s shares have gained 0.7% in the past three months.
Ferguson plc FERG presently carries a Zacks Rank #2. Its earnings surprise in the last reported quarter was 16.82%.
Ferguson’s earnings estimates increased 0.7% for fiscal 2022 (ending July 2022) in the past 60 days. FERG’s shares have lost 14.7% in the past three months.
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