In order to restructure its portfolio, Dover Corporation (DOV - Free Report) announced the separation of its upstream energy businesses in the Energy segment. The maker of industrial products and manufacturing equipment is searching for sound alternatives to separate the business either by a tax-free spin-off, sale or other strategic combination.
Dover’s upstream energy business which comprises Dover Artificial Lift, Dover Energy Automation, and US Synthetic is jointly known as the Wellsite business. The business operates in the oil & gas drilling and production industry.
Dover anticipates the Wellsite business to generate approximately $1 billion revenues and $250 million earnings, before interest, taxes, depreciation and amortization in 2017. However, the company remains cautious and predicts that its oil & gas exposed businesses will remain turbulent due to volatile oil prices.
Notably, the above discussed separation will help Dover focus on core platforms of market-leading businesses which are less volatile with bright prospects. Without Wellsite, Dover is expected to witness strong organic growth though with lower volatility.
Dover expects to complete its assessment of strategic separation alternatives by the end of this year. The company has appointed Lazard and Centerview Partners as financial advisors and Simpson Thacher & Bartlett LLP as legal counsel to support the company in evaluating the alternatives.
Dover anticipates robust organic revenue growth and margin expansion over the next few years.
The company has built and expanded its positions, serving growth markets through platforms like marking and coding, fueling & transport and pumps. It has significant potential to boost its revenues and margin through consistent focus on operating model and inorganic investment.
Year to date, Dover has outperformed the industry it belongs to. The company’s shares gained around 17.5% during this period compared with 16% growth recorded by the industry.
Zacks Rank & Stocks to Consider
Currently, Dover carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the sector include Altra Industrial Motion Corp. (AIMC - Free Report) , Terex Corporation (TEX - Free Report) and AGCO Corporation (AGCO - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Altra Industrial Motion has an expected long-term earnings growth rate of 8%.
Terex has an expected long-term earnings growth rate of 19.7%.
AGCO has an expected long-term earnings growth rate of 13.5%.
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