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Donaldson to Gain From Strong Product Portfolio & Cash Flow

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On Nov 9, we issued an updated research report on Donaldson Company, Inc. (DCI - Free Report) .

In the past six months, this Zacks Rank #2 (Buy) stock has returned 12.2% compared with the industry’s growth of 23.7%.

Present Scenario

Donaldson is poised to benefit from its strong product portfolio, focus on innovation and supply-chain optimization, growing e-commerce business and growth investments. Also, the company’s presence across various end markets enables it to tap opportunities and neutralize operating risks associated with a single market. Moving ahead, it expects to benefit from strength in the process filtration business in the food and beverage market. Also, stability across its manufacturing replacement parts business is likely to be beneficial.

Also, Donaldson’s ability to generate healthy cash flows allows it to effectively deploy capital for repurchasing shares and paying out dividend. For instance, in fiscal 2020 (ended Jul 31, 2020), the company’s free cash flow increased 35.4% to $264.6 million, on a year-over-year basis. Notably, in fiscal 2020, it utilized $94.3 million for purchasing treasury stocks and $106.4 million for paying out dividends.

Moreover, the company is working diligently for the safety of its workers and management of its supply chain. In addition, its cost-reduction actions are likely to mitigate some of the financial stress caused by the coronavirus outbreak.

However, challenged end-market conditions owing to the pandemic-led issues might weigh on its top line in the near term. For fiscal 2021, Donaldson kept its projections suspended. It expects sales in the first half of fiscal 2021 to decline on a year-over-year basis.

Other Key Picks

Some other top-ranked stocks from the Zacks Industrial Products sector are iRobot Corporation (IRBT - Free Report) , Energy Recovery, Inc. (ERII - Free Report) and Heritage-Crystal Clean, Inc. . While iRobot currently sports a Zacks Rank #1 (Strong Buy), Energy Recovery and Heritage-Crystal Clean carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

iRobot delivered a positive earnings surprise of 164.86%, on average, in the trailing four quarters.

Energy Recovery delivered a positive earnings surprise of 239.58%, on average, in the trailing four quarters.

Heritage-Crystal Clean delivered a positive earnings surprise of 55.26%, on average, in the trailing four quarters.

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