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Dover (DOV) Upgraded to Hold Owing to Upbeat Q3 Outlook


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Dover Corporation (DOV - Analyst Report) was upgraded to a Zacks Rank #3 (Hold) on Sep 26, 2016. Going by the Zacks model, stocks carrying a Zacks Rank #3 are likely to perform in line with the broader market in the quarters ahead.

The company has seen its stock price surge 13.49% on a year-to-date basis. The earnings for Dover are expected to grow by 11.54% in the long term.

Why Upgraded to Hold?

New York-based Dover Corporation is an industrial conglomerate producing a wide range of specialized industrial products and manufacturing equipment.

Dover’s second-quarter results, excluding deal costs and one-time items, were generally in line with the company’s expectations. Within the quarter, June revenues and earnings had significantly improved from April's results. The company anticipates seeing this positive momentum carry into the third quarter and subsequently an improved second half of the year.

In Engineered Systems, Dover’s expectations for organic growth remain unchanged. The company projects the marking and coding business to grow in the low-to-mid single digits, and digital textile businesses to witness double-digit growth. The segment will continue to benefit from new products offered across the segment. It estimates its retail refrigeration business to remain solid, driven by leading technology and merchandising solutions. The company also anticipates that can-shaping orders and shipments to push out over year end.

DOVER CORP Price and Consensus

DOVER CORP Price and Consensus | DOVER CORP Quote

Dover stands to gain from solid growth from the industrial, hygienic and pharma markets. Within Refrigeration and Food Equipment, Dover’s plans for organic revenue growth and margin improvement remain on track heading into the seasonally strong second and third quarters. Leading technology and merchandising solutions are resulting in customer wins at several regional and national food retail chains.

Dover has closed three acquisitions this year, including Tokheim and has signed an agreement to acquire Wayne. Tokheim's dispenser and system businesses will became part of OPW, a business unit within Dover's Fluids segment. The buyout will further enhance OPW's strong position in retail fueling equipment. Recent acquisitions, net of closing costs and accounting adjustments, should contribute about 18 cents to 2016 EPS.

Moreover, Dover's acquisition of Wayne Fueling Systems will improve its portfolio and also provide significant margin enhancement opportunities. Dover anticipates the transaction to close around the end of the third quarter. Furthermore, the company expects to ink several deals over the next few quarters in its key growth markets. This will also drive growth in the third quarter.

Though the above mentioned positive aspects boost our confidence in the stock, certain inherent issues raise our concerns for the same. Persistent softness in oil & gas related markets as well as decline in bookings remain headwinds. The company expects $6 million of restructuring charges in the third quarter, $3 million higher than the prior forecast for this segment. This will hurt the segment’s earnings in the third quarter.

Stocks to Consider

Some better-ranked stocks within the machinery-general industrial industry include DXP Enterprises, Inc. (DXPE - Snapshot Report) , Gorman-Rupp Co. (GRC - Snapshot Report) and Nordson Corporation (NDSN - Snapshot Report) . All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DXP has seen solid upward estimate revisions over the past 60 days. Estimates for Gorman-Rupp and Nordson have also been northward bound over the past 60 days.

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