The company recently delivered its 11th consecutive positive earnings surprise, prompting analysts to revise their estimates higher. It is a Zacks #2 Rank (Buy).

Dover has also been rewarding shareholders through stock buybacks and dividend increases. It currently yields 2.0%. Valuation is attractive too, with shares sporting a PEG ratio of 1.0.

Company Description

Dover Corporation is a diversified global manufacturer. Revenues for 2011 were divided as follows:

Communication Technologies: 17%
Energy: 24%
Engineered Systems: 39%
Printing & Identification: 20%

The company is headquartered in Downers Grove, Illinois and has a market cap of $11.6 billion.

Fourth Quarter Results

Dover delivered better than expected fourth quarter results. Earnings per share came in at $1.07, beating the Zacks Consensus Estimate by 5 cents. It was a 19% increase over the same quarter in 2010.

Revenue rose 15% to $2.0 billion, including 6% organic growth. Both the Communication Technologies and Energy segments experienced revenue growth of 41% year-over-year, which was partially offset by a 13% decline in Printing & Identification. The Engineered Systems segment saw top-line growth of 8%.

Gross profit declined from 39.5% to 37.8% of total revenue, but this was offset by the leveraging of its selling, general and administrative expenses.

Overall, operating income increased 14% while the operating margin declined 50 basis points to 16.5%.

Outlook

Management provided guidance for 2012 following solid Q4 results. The company expects earnings between $4.70 and $5.00 on revenue growth of 7% - 10%.

The Zacks Consensus Estimate for 2012 is $4.87, within guidance, and representing 14% EPS growth. The 2013 consensus estimate is now $5.43, corresponding with 11% EPS growth.

Returning Value to Shareholders

Dover generated nearly $800 million in free cash flow, which it used to buyback shares and raise its dividend for the 56th straight year.

It currently yields 2.0%.

Since 2000, the company has increased its dividend at a compound rate of 9%:

Reasonable Valuation

The valuation picture looks reasonable for DOV. Shares trade at 12.7x 12-month forward earnings, a discount to its 10-year median of 15.0x.

Its PEG ratio is an attractive 1.0 based on a long-term EPS growth rate of 13.3%.

The Bottom Line

With solid earnings momentum, strong growth, a 2.0% yield and reasonable valuation, Dover offers attractive total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.