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On Apr 5, we maintained our Neutral recommendation on Dover Corporation (DOV - Analyst Report), an industrial conglomerate manufacturing a wide range of specialized industrial products and manufacturing equipment, on the basis of expected benefits from its active acquisition pipeline, bookings and backlog growth, growth in the cell phone market, offset by concerns regarding headwinds at its Printing and Identification and Energy segments.

Why Reiterated?

Dover’s fourth-quarter 2012 adjusted earnings were $1.09 per share, up 7% year over year and ahead of the Zacks Consensus Estimate of $1.07. Total revenue improved 6% year over year to $2 billion, in line with the Zacks Consensus Estimate, driven by organic growth of 2% and acquisitions benefit of 5%.

Dover will continue to benefit from its active acquisition pipeline. Dover remains committed to its target of achieving annual organic sales growth of 4% to 6% in the next three years, aided by acquisition growth of 3% to 5%. The company intends to focus on its five key growth spaces communication components, energy, product ID, refrigeration and food equipment, and fluid solutions.

Dover's total bookings increased 4% year over year in 4Q12, driven by growth in Engineered Systems and Energy segment bookings. Total book-to-bill improved to 0.98x compared with 0.94x in the last quarter and backlog at the quarter end increased 7% year over year. This bodes well for the year 2013.

Dover currently has a market-leading position as a supplier of microphones for smartphones. The company expects the handset market to be strong in 2013, supported by numerous new product releases as well as increased use of multiple microphones per handset. Dover’s largest acquisition, Sound Solutions, a manufacturer of dynamic speakers and receivers for cell phones and other consumer electronics, enhanced Dover’s product offerings serving the high growth handset market. Dover expects Sound Solutions to contribute $0.13 to $0.18 to earnings per share in 2013.

On the flipside, Dover has significant exposure to domestic oil and gas production levels and rig counts through its Energy platform’s supply of consumables to the North American energy sector. Dover’s Energy segment’s results are expected to be affected in the first half of fiscal 2013 due to a lower North American rig count.

Furthermore, Dover has access to the volatile semiconductor and electronics end-markets through its Printing and Identification segment. The near-term outlook is bleak for semiconductor manufacturers, with negatives (tablet cannibalization, weaker-than-expected spending by both consumers and enterprises) outweighing the positives (cloud computing, Windows 8) for now. The segment’s results will also be affected given its above average exposure to Europe.

Other Stocks to Consider

Dover retains a short-term Zacks Rank #4 (Sell). Altra Holdings (AIMC - Snapshot Report), The Babcock & Wilcox Company (BWC - Snapshot Report) and EnPro Industries, Inc. (NPO - Snapshot Report), with a Zacks Rank #1 (Strong Buy), are more favorable options for investors keen on this industry.
 

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