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We have maintained our Neutral recommendation on Dover Corporation (DOV - Analyst Report) based on the benefits from acquisitions, growth in bookings and orders and a positive outlook for the semiconductor market. However, volatile raw material costs will keep margins under pressure. Above-average exposure to Europe and a lower North American rig count will also remain headwinds.

Why the Reiteration?

Dover, on Jul 18, reported adjusted earnings of $1.36 per share in the second quarter of 2013, exceeding the prior-year quarter’s earnings of $1.10 per share. Total revenue also increased 9% year over year to $2.2 billion, including organic growth of 5% and 4% contribution from acquisitions.

Dover witnessed solid growth from its businesses serving the consumer electronics and refrigeration markets along with contribution from energy and fluids businesses. Furthermore, Dover’s strategic decision to spin off certain parts of its communication technologies businesses also contributed to growth. Additionally, revenues were driven by the completion of four synergistic acquisitions.

The World Semiconductor Trade Statistics (WSTS) predicts the global semiconductor market to grow 2% year over year to $298 billion in 2013. The market is expected to recover with expectations of slight recovery in the global economy and stable growth of product categories related to smartphones, tablets and automotive. This will positively impact Dover’s Printing and Identification segment.

Furthermore, for fiscal 2013, Dover expects revenue growth in the range of 7–9% on the back of organic revenue growth of 3–5%, while acquisitions are expected to add 4%. Earnings per share from continuing operations are expected to be $5.56 to $5.71.

Dover also raised its quarterly dividend by 7% to $0.375 per share from $0.35 per share, adding to shareholders’ wealth. The increased dividend will raise Dover’s dividend yield from the current 1.60% to 1.72%. Solid earnings growth should allow the company to continue this favorable trend in the coming years.

Despite these positives, the Printing & Identification segment are likely to be affected given its above-average exposure to Europe while a lower North American rig count will constrain growth in the Energy segment. In addition, mining and defense will continue to be weaker.

Moreover, Dover’s results will be affected by currency fluctuations, adverse weather conditions, weakening GDP in Europe as well as further deterioration in China’s economy.

Other Stocks to Consider

Dover currently retains Zacks Rank #3 (Hold). Other stocks in the same industry with a favorable Zacks rank include Gorman-Rupp Co. (GRC - Snapshot Report), Graham Corp. (GHM - Snapshot Report) with Zacks Rank # 1 (Strong Buy), and Barnes Group Inc. (B - Snapshot Report) with a Zacks Rank #2 (Buy).

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