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What's in the Cards for Roper (ROP) This Earnings Season?

Zacks Equity Research

Roper Technologies, Inc. ROP is slated to report fourth-quarter 2018 results on Feb 1, before the market opens.

The company pulled off average positive earnings surprise of 5.10% in the preceding four quarters, beating estimates in each. Notably, Roper’s third-quarter adjusted earnings of $3.09 per share outpaced the Zacks Consensus Estimate of $2.94 by 5.10%.

In the past month, the company’s shares have gained 6.3% compared with 5.7% growth recorded by the industry it belongs to.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Roper has successfully maintained a dominant position in most of the markets where it operates. Its diversified revenue stream also allows it to counter headwinds, stemming from a cyclical business environment. We believe that the company’s innovative product pipeline is likely to be a major growth driver in the upcoming quarters.

Also, Roper’s unique asset-light business model helped it to generate 9% organic revenue growth in the third quarter, which was broad-based across all of its segments.  This trend is likely to continue, and get reflected in the to-be-reported quarter as well. Further, it aids the company to generate strong cash flow, which is likely to boost forthcoming financial results. In addition, the company’s project wins as well as strong order trends across industrial and the energy businesses are expected to drive its top line in the future.

The Zacks Consensus Estimate for fourth-quarter revenues of Roper's Industrial Technology and Medical & Scientific Imagingsegments is pegged at $218 million and $388 million, respectively, higher than $207 million and $368 million recorded in the prior-year quarter. Revenues from Energy Systems & Controls segment are also anticipated to be strong, with the consensus mark pegged at $168 million, reflecting growth of 5% year over year.

However, rising cost of sales has been a major concern for Roper. The company's cost of sales increased 7.3% year over year 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 near-term quarters. Also, the company expects its tax rate to be roughly 23% in the fourth quarter. This rate is higher than 21.5% in the third quarter.

Earnings Whispers

Our proven model provides some idea on the stocks that are about to release earnings results. Per the model, a stock needs to have a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The case with Roper is given below:

Earnings ESP: Roper has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $3.13.

Roper Technologies, Inc. Price and EPS Surprise

Roper Technologies, Inc. Price and EPS Surprise | Roper Technologies, Inc. Quote

Zacks Rank: Roper carries a Zacks Rank #3, which increases the predictive power of ESP. However, its 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies from the same space you may want to consider as our model shows that these have the right combination of elements to beat estimates this earnings season:

HD Supply Holdings, Inc. HDS has an Earnings ESP of +1.50% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Terex Corporation TEX has an Earnings ESP of +3.17% and a Zacks Rank #3.

Nordson Corporation NDSN has an Earnings ESP of +4.82% and a Zacks Rank #3.

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