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On Dec 13, we maintained our Neutral recommendation on Dover Corporation (DOV - Analyst Report). The company is expected to benefit from acquisitions, growth in bookings and orders and its focus on oil and gas, plastics and petrochemicals markets. However, volatile raw material costs, rising macroeconomic uncertainty and increased exposure in the energy sector remain headwinds.

Why the Reiteration?

Dover, on Oct 17, reported adjusted earnings of $1.54 per share in the third quarter of 2013, up 23% from the prior-year quarter’s earnings of $1.25 per share. The improvement was led by organic growth across all segments, strength in drilling and downstream markets and cost reduction activities. Total revenue also increased 7% year over year to $2.25 billion including an organic growth of 3% and a 4% contribution from acquisitions.

In Nov 2013, Dover closed its previously announced acquisition of Italy-based Finder for $145 million. The acquisition will help Dover strengthen the position of the Pump Solutions Group in the energy market and enhance its global footprint.

Furthermore, Dover signed a definitive agreement to sell its DEK Printing Machines unit (DEK) to Hong Kong-listed ASM Pacific Technology. The sale, which is expected to close by mid-2014, is likely to generate cash proceeds of $170 million. The deal will simplify Dover’s business profile and strengthen focus on its key industrial growth spaces.

Dover generated cash flow from operating activities of $340 million in the third quarter, up from $286 million in the prior-year quarter. Dover's total bookings also increased 9% year over year to $2.2 billion. Dover will continue to benefit from bookings and orders growth in the upcoming quarters.

The company also bought 650,000 shares in the third quarter for about $57 million. With strong cash flow, management expects to complete 70–80% of the remaining $343 million on the $1 billion share buyback authorization by the end of 2013.

Despite these positives, revenues and margins in the Engineered Systems and the Printing Technologies segments are likely to be affected by rising macroeconomic uncertainty and limited credit availability.

Additionally, Dover tweaked its earnings guidance to a range of $5.57–$5.64 per share, from the prior earnings expectation of $5.56-$5.71 a share, for the full-year 2013. This was due to weaker-than-expected market conditions. Dover now anticipates revenue growth of 7% against its previous projection of  7%–9% growth.

Moreover, volatile raw-material costs, uncertainty regarding governmental funding and above-average exposure to Europe will remain headwinds for Dover in the near term.

Dover currently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Stocks in the same industry which are more favorably ranked include Xylem Inc. (XYL - Analyst Report) with a Zacks Rank #1 (Strong Buy); and DXP Enterprises, Inc. (DXPE - Snapshot Report) and Flowserve Corp. (FLS - Analyst Report), both with a Zacks Rank #2 (Buy).

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