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Here's Why it is Worth Investing in Donaldson (DCI) Stock Now

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Donaldson Company, Inc. (DCI - Free Report) currently boasts strong prospects, supported by its diversified businesses, solid product portfolio, growth investments and a sound capital-deployment strategy.

Notably, the Zacks Rank #2 (Buy) company has a market capitalization of $7.1 billion. In the past three months, it has gained 8.9% compared with the industry’s growth of 13.4%.

Let’s delve into the factors that make investment in the company a smart choice at the moment.

Business Structure: Donaldson is set to benefit from its well-diversified business structure and large customer base in various end markets including construction, mining, aerospace, defense, and food & beverage. Also, the company’s solid portfolio of replacement and process filtration products and growing e-commerce business, coupled with its growth investments and supply-chain optimization actions, are likely to be beneficial in the quarters ahead. For the second quarter of fiscal 2021 (ending January 2021), it expects its top-line performance to improve on a sequential basis.

Strong Cash Flow & Rewards to Shareholders: Strong cash flows enable the company to effectively deploy capital for repurchasing shares and paying out dividend. For instance, in the first quarter of fiscal 2021 (ended October 2020), the company’s free cash flow surged 124.7% to $110.1 million on a year-over-year basis. Also, for fiscal 2021 (ending July 2021), it expects free cash flow conversion to be in excess of 100%. In the fiscal first quarter, Donaldson paid out dividends worth $26.6 million and repurchased shares worth $15.6 million.

Initiatives: The company’s strong operational execution and cost-control measures have been aiding it in driving profitability and maintaining a healthy margin performance. For instance, its cost of sales and operating expenses recorded year-over-year decline of 6.2% and 5%, respectively, in the fiscal first quarter. Also, its gross margin expanded 60 basis points.

The Zacks Consensus Estimate for Donaldson’s earnings is pegged at $2.11 for fiscal 2021, up 4.5% from the 60-day-ago figure. The consensus estimate for fiscal 2022 (ending July 2022) earnings is pegged at $2.48, up 4.2% over the same time frame.

Other Stocks to Consider

Some other top-ranked stocks from the same space are Casella Waste Systems, Inc. (CWST - Free Report) , Energy Recovery, Inc. (ERII - Free Report) and Vertex Energy, Inc. (VTNR - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Casella Waste Systems delivered an earnings surprise of 156.37%, on average, in the trailing four quarters.

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

Vertex Energy delivered an earnings surprise of 37.50%, in the last reported quarter.

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