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Roper (ROP) Gains From Strength Across End Markets Amid Risks

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Roper Technologies, Inc. (ROP - Free Report) is experiencing strength across its Verathon, Neptune, DAT and ConstructConnect businesses, driven by improvement in demand for its products and solutions across end markets. The company expects strength in education and healthcare end markets, coupled with solid customer retention and network expansion, to drive its performance in the quarters ahead. For 2021, Roper anticipates organic sales to increase more than 7% year over year. For the second half of the year, the same is expected to grow in the low double digits range.

The company intends to acquire assets to strengthen its businesses. It acquired EPSi in October 2020, which has been boosting its Strata business. Also, the company’s buyouts of WELIS and Impact Financial Systems (both in September 2020) have augmented its iPipeline business. In September 2020, it completed the acquisition of Vertafore, Inc., which has boosted its SaaS-based offerings for the property and casualty insurance industry. Acquisitions had a positive contribution of 12% to Roper’s sales growth in the second quarter of 2021.

Regarding rewards to shareholders, the company paid out dividends of $117.8 million in the first six months of 2021, reflecting an increase from $106.6 million in the year-ago period. Also, it hiked the quarterly dividend rate by 10% or 5 cents per share to 56.25 cents in November 2020.

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In the past six months, this Zacks Rank #3 (Hold) stock has gained 13% compared with the industry’s increase of 0.2%.

However, the company has been experiencing rising costs of sales over time. In the second quarter of 2021, its cost of sales and its selling, general and administrative expenses jumped 20% and 20.8%, respectively, on a year-over-year basis. Escalation in costs and operating expenses, if not controlled, can affect its margins and profitability, going forward.

Roper’s high-debt profile also poses a concern. In the last three years (2018-2020), its long-term debt rose 22.4% (CAGR). Its long-term debt balance was $8,199.5 million at the end of second-quarter 2021, reflecting an increase of 55.8% year over year. Any further increase in debt levels can raise the company’s financial obligations.

Stocks to Consider

Some better-ranked stocks from the same space are Kadant Inc (KAI - Free Report) , EnPro Industries, Inc. (NPO - Free Report) , and Welbilt, Inc. (WBT - Free Report) . While Kadant currently sports a Zacks Rank #1 (Strong Buy), EnPro and Welbilt carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kadant pulled off an earnings surprise of 22.26%, on average, in the trailing four quarters.

EnPro pulled off an earnings surprise of 80.64%, on average, in the trailing four quarters.

Welbilt pulled off an earnings surprise of 216.67%, on average, in the trailing four quarters.

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