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Here's Why You Should Hold on to Roper (ROP) Stock for Now
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We issued an updated research report on Roper Technologies, Inc. (ROP - Free Report) on Sep 17.
This industrial company’s market capitalization is approximately $32.2 billion. It currently carries a Zacks Rank #3 (Hold).
Few growth drivers, as well as certain headwinds that might influence Roper, have been discussed below.
Factors Favoring Roper
Financial Performance and Outlook: Roper delivered better-than-expected results in the last four quarters. Average earnings surprise is a positive 4.48%, including the impact of an earnings beat of 7.04% recorded in the second quarter of 2018. Moreover, earnings in the second quarter increased 29% year over year, driven by organic sales growth and contribution from acquired assets.
For 2018, Roper anticipates adjusted earnings per share of $11.40-$11.56, above the previous projection of $11.08-$11.32. Organic sales are anticipated to grow roughly 7%, above 4-6% growth estimated earlier. Innovative products, asset-light business model, diversified business structure and acquisitive nature will be advantageous.
Driven by impressive results and solid outlook, the company’s earnings estimates for 2018 have been revised upward by seven brokerage firms in the past 60 days. Further, the estimate for 2019 has been raised by six firms against one downward revision. Currently, the Zack Consensus Estimate for earnings is pegged at $11.51 for 2018 and $12.40 for 2019. Both estimates reflect growth of 2.1% from the respective tallies 60-days ago.
In the past three months, Roper’s shares have yielded 12.7% return, outperforming 11% gain recorded by the industry it belongs to.
Solid Business Structure: Roper caters to the demand of its customers in various end markets, including medical diagnostics, oil & gas, semiconductor, scientific research, refrigeration, water & wastewater, automotive, agricultural irrigation, power generation and other industries. The company accomplished this through its four reporting segments, including Industrial Technology, Energy Systems & Controls, Medical & Scientific Imaging, and RF Technology.Strengthening end-market demand will be a boon for Roper’ssegmental businesses.
Roper anticipates RF Technology segment’s organic sales to grow 4-6% in the second half of 2018 while predicts organic growth to be in a high-single digit in the third quarter and a mid-single digit in the fourth quarter. For both Industrial Technology, and Energy Systems & Controls segments, organic sales are predicted to be in double digits in the third quarter and mid-single digit in the fourth quarter.
Inorganic Activities: Acquisition is one of the favored growth options for Roper. During the first half of 2018, it added five assets to the RF Technology segment. Of these, Smartbid, Quote Software and PlanSwift Software buyouts provide software for the construction industry. Further, in June 2018, the company acquired PowerPlan, Inc. and ConceptShare, Inc.
In addition, during the second quarter, Roper agreed to divest its wholly-owned subsidiary, Gatan, Inc., to Thermo Fisher Scientific, Inc. (TMO - Free Report) . Gatan, as noted, is a part of the company’s Medical & Scientific Imaging segment. The transaction value has been fixed at $925 million in cash. The resources, obtained on the completion of the transaction by the end of 2018, can be better utilized by the company.
Factors Working Against Roper
Poor Valuation: On a P/E (TTM) basis, Roper appears to be overvalued compared with the industry. It’s worth noting that a company’s P/E multiple is reflective of the amount that an investor is willing to pay for each dollar of earnings of the company. Currently, the company’s P/E multiple is at 29.5, higher than 23.2 for the industry and the three-month median multiple of 28.
Rising Costs an Impediment: Roper is grappling with adverse impacts of rising cost of sales and expenses. In the last five years (2013-2017), the company’s cost of sales has expanded 5.2% (CAGR) while its operating expenses have grown 9.7% (CAGR). The story continued in 2018 as well, with roughly 9.7% increase in the cost of sales and 11.1% growth in operating expenses registered in the first half of 2018.
We believe, if unchecked, unwarranted rise in these costs and expenses can be detrimental to the company’s margins, and profitability.
Other Headwinds: Though acquisitions have strengthened Roper’s businesses over time, it raised integration risks for the company. Any failure to efficiently integrated acquired assets to the segments will result in huge losses. Further, very frequent acquisitions may compel the company to borrow funds and might be a distraction for management.
Stocks to Consider
Two better-ranked stocks in the industry are Altra Industrial Motion Corp. and Colfax Corporation . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the last 60 days, earnings estimates for each of these stocks have improved for the current year and the next year. Moreover, average positive earnings surprise for the last four quarters has been 4.01% for Altra Industrial Motion and 7.91% for Colfax.
5 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2018 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs. A bonus Zacks Special Report names this breakthrough and the 5 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains.
Image: Bigstock
Here's Why You Should Hold on to Roper (ROP) Stock for Now
We issued an updated research report on Roper Technologies, Inc. (ROP - Free Report) on Sep 17.
This industrial company’s market capitalization is approximately $32.2 billion. It currently carries a Zacks Rank #3 (Hold).
Few growth drivers, as well as certain headwinds that might influence Roper, have been discussed below.
Factors Favoring Roper
Financial Performance and Outlook: Roper delivered better-than-expected results in the last four quarters. Average earnings surprise is a positive 4.48%, including the impact of an earnings beat of 7.04% recorded in the second quarter of 2018. Moreover, earnings in the second quarter increased 29% year over year, driven by organic sales growth and contribution from acquired assets.
For 2018, Roper anticipates adjusted earnings per share of $11.40-$11.56, above the previous projection of $11.08-$11.32. Organic sales are anticipated to grow roughly 7%, above 4-6% growth estimated earlier. Innovative products, asset-light business model, diversified business structure and acquisitive nature will be advantageous.
Driven by impressive results and solid outlook, the company’s earnings estimates for 2018 have been revised upward by seven brokerage firms in the past 60 days. Further, the estimate for 2019 has been raised by six firms against one downward revision. Currently, the Zack Consensus Estimate for earnings is pegged at $11.51 for 2018 and $12.40 for 2019. Both estimates reflect growth of 2.1% from the respective tallies 60-days ago.
Roper Technologies, Inc. Price and Consensus
Roper Technologies, Inc. Price and Consensus | Roper Technologies, Inc. Quote
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In the past three months, Roper’s shares have yielded 12.7% return, outperforming 11% gain recorded by the industry it belongs to.
Solid Business Structure: Roper caters to the demand of its customers in various end markets, including medical diagnostics, oil & gas, semiconductor, scientific research, refrigeration, water & wastewater, automotive, agricultural irrigation, power generation and other industries. The company accomplished this through its four reporting segments, including Industrial Technology, Energy Systems & Controls, Medical & Scientific Imaging, and RF Technology.Strengthening end-market demand will be a boon for Roper’ssegmental businesses.
Roper anticipates RF Technology segment’s organic sales to grow 4-6% in the second half of 2018 while predicts organic growth to be in a high-single digit in the third quarter and a mid-single digit in the fourth quarter. For both Industrial Technology, and Energy Systems & Controls segments, organic sales are predicted to be in double digits in the third quarter and mid-single digit in the fourth quarter.
Inorganic Activities: Acquisition is one of the favored growth options for Roper. During the first half of 2018, it added five assets to the RF Technology segment. Of these, Smartbid, Quote Software and PlanSwift Software buyouts provide software for the construction industry. Further, in June 2018, the company acquired PowerPlan, Inc. and ConceptShare, Inc.
In addition, during the second quarter, Roper agreed to divest its wholly-owned subsidiary, Gatan, Inc., to Thermo Fisher Scientific, Inc. (TMO - Free Report) . Gatan, as noted, is a part of the company’s Medical & Scientific Imaging segment. The transaction value has been fixed at $925 million in cash. The resources, obtained on the completion of the transaction by the end of 2018, can be better utilized by the company.
Factors Working Against Roper
Poor Valuation: On a P/E (TTM) basis, Roper appears to be overvalued compared with the industry. It’s worth noting that a company’s P/E multiple is reflective of the amount that an investor is willing to pay for each dollar of earnings of the company. Currently, the company’s P/E multiple is at 29.5, higher than 23.2 for the industry and the three-month median multiple of 28.
Rising Costs an Impediment: Roper is grappling with adverse impacts of rising cost of sales and expenses. In the last five years (2013-2017), the company’s cost of sales has expanded 5.2% (CAGR) while its operating expenses have grown 9.7% (CAGR). The story continued in 2018 as well, with roughly 9.7% increase in the cost of sales and 11.1% growth in operating expenses registered in the first half of 2018.
We believe, if unchecked, unwarranted rise in these costs and expenses can be detrimental to the company’s margins, and profitability.
Other Headwinds: Though acquisitions have strengthened Roper’s businesses over time, it raised integration risks for the company. Any failure to efficiently integrated acquired assets to the segments will result in huge losses. Further, very frequent acquisitions may compel the company to borrow funds and might be a distraction for management.
Stocks to Consider
Two better-ranked stocks in the industry are Altra Industrial Motion Corp. and Colfax Corporation . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the last 60 days, earnings estimates for each of these stocks have improved for the current year and the next year. Moreover, average positive earnings surprise for the last four quarters has been 4.01% for Altra Industrial Motion and 7.91% for Colfax.
5 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2018 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs. A bonus Zacks Special Report names this breakthrough and the 5 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains.
Click to see them right now >>