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Dover (DOV) Rides on Strong Demand & Buyouts Amid High Costs

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Dover Corporation (DOV - Free Report) is gaining from solid end-market demand across all segments, booking rates and robust order backlog. Benefits from cost-reduction actions, productivity gains, focus on investments and acquisitions and efforts to reduce debt levels are also driving growth.

Robust End-Market Demand to Drive Order Growth

Dover has been gaining from robust order trends across most of its businesses for a while, stemming from strong end-market demand. The company is well poised to deliver robust top-line growth, margin expansion and double-digit earnings per share (EPS) growth in 2022, driven by a strong backlog, margin conversion efforts, benefits from acquisitions and investments in capacity expansions and productivity improvement. DOV expects adjusted EPS to be between $8.45 and $8.65 for 2022, up from $7.63 per share reported in 2021. Organic revenue growth is expected between 7-9% for 2022. Apart from this, the company’s productivity and cost-control initiatives will continue to drive bottom-line growth.

Segments Poised Well on Strong Demand

In the Engineered Products segment, demand for engineered products, vehicle service and industrial automation has been solid. Improved cost spread and strong shipping backlog will likely support the segment’s margin in 2022. The Clean Energy and Fueling segment will gain from solid growth in below-ground, fuel transport, vehicle wash and software solutions coupled with acquisitions in Clean Energy and components.

The Imaging & Identification segment will remain strong as component shortages in core marketing and coding subside. The marking & coding business is expected to maintain its growth trajectory with serialization and brand protection software.

The Pumps & Process Solutions segment will ride on solid activity in industrial pumps and polymer processing. Precision components continue their upward trajectory of growth in refineries and petrochemical plants.

The Climate and Sustainability Technologies segment will perform well in 2022, given the large backlog and continued elevated order rates. New orders and core food retail business have been healthy across its product segments. Also, its heat exchanger and beverage packaging business are seeing strong order rates.

Acquisitions Act as a Catalyst

Dover focuses on investments in capacity expansions in high-growth businesses and productivity improvements across its portfolio. It has a long tradition of making successful acquisitions in diverse end markets. Recently, the company completed the previously-announced acquisition of Malema Engineering Corporation, which will be part of the PSG business unit within the Pumps & Process Solutions segment. The inclusion will enhance the company’s biopharma single-use production offering.

In April, the company closed the acquisition of specific intellectual property associated with electrically operated refuse collection vehicle bodies from Boivin Evolution Inc. The buyout will expand the technological footprint and product portfolio of Dover’s Environmental Solutions Group ("ESG") business unit within its Engineered Products segment. These acquisitions will contribute to the top line. It deployed $1.1 billion in nine bolt-on acquisitions in 2021.

However, material cost inflation, input shortages, COVID-19 Omicron variant-related absenteeism, supply chain challenges and labor constraints will continue to dent the company’s margin performance.

Price Performance

Dover’s shares have lost 19.1% in the past three months compared to the industry’s fall of 11.4%.

Zacks Investment Research
Image Source: Zacks Investment Research

Zacks Rank & Stocks to Consider

Dover currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Greif Inc. (GEF - Free Report) , Titan International (TWI - Free Report) and RBC Bearings (ROLL - Free Report) . While GEF and TWI each flaunt a Zacks Rank #1 (Strong Buy), ROLL carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Greif has an estimated earnings growth rate of 36% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 17%.

Greif pulled off a trailing four-quarter earnings surprise of 22.9%, on average. The company’s shares have gained 3.5% in three months.

Titan International has an estimated earnings growth rate of 112% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 55%.

Titan International pulled off a trailing four-quarter earnings surprise of 56.4%, on average. The company’s shares have appreciated 5.2% in the last three months.

RBC Bearings has an expected earnings growth rate of 50% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 7% in the past 60 days.

RBC Bearings has a trailing four-quarter earnings surprise of 3.4%, on average. ROLL’s shares have increased 4.2% over the past three months.