Dover Corporation (DOV - Free Report) has been witnessing encouraging improvement over the past few quarters, majorly driven by strong bookings, cost-reduction initiatives and restructuring programs. The company will benefit from the spin-off of Apergy. However, challenges in the Fluids segment and foreign-exchange volatility remain headwinds.
This Zacks Rank #3 (Hold) company has an estimated long-term earnings growth rate of 12%.
Below, we briefly discuss the company’s potential growth drivers and possible headwinds.
Factors Favoring Dover
Positive Earnings Surprise History
Dover outpaced the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 5.81%.
Dover’s shares have outperformed the industry over the past three months. The stock has gained around 10%, while the industry recorded growth of 6%.
Looking at Dover’s price-to-earnings ratio, shares are underpriced at the current level, which seems to be attractive for investors. The company has a trailing P/E ratio of 18.0, which is below the industry average of 22.4.
Growth Drivers in Place
Dover expects to benefit in 2018 from its targeted cost-reduction initiative. The company has executed restructuring programs to better align the costs and operations with the current market conditions through targeted facility consolidations, headcount reductions and other measures. These programs are currently underway and will likely be majorly completed in the next 12 months.
Dover continues its efforts to simplify the company’s portfolio and increase focus on markets with growth prospects. In sync with this, it successfully completed the spin-off of its upstream energy businesses — Apergy — in May 2018. Following the spin-off, the company no longer has the Energy segment and is aligned into three reportable segments. Thus, the divestment will enable Dover to concentrate on its less volatile core platforms by delivering innovative equipment and components, specialty systems, consumable supplies, software and digital solutions, and support services.
In addition, Dover’s bookings and backlog improved year over year in second-quarter 2018. Backed by strong bookings growth, the company is poised for an improved third-quarter 2018 performance.
Headwinds for Dover
Dover’s performance will be impacted by foreign exchange volatility, moving ahead. In Dover’s Fluids segment, the DFS business posted negative earnings conversion as a result of the continued operational costs rising from the European footprint consolidation, significant supply-chain costs and accelerated fees, and discrete items in the second quarter. The company expects that a significant portion of these issues will remain till the end of the ongoing quarter.
Investors might want to hold on to the stock, at present, as it has ample prospects of outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the same sector are W.W. Grainger, Inc. (GWW - Free Report) , iRobot Corporation (IRBT - Free Report) and Atkore International Group Inc. (ATKR - 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.
Grainger has a long-term earnings growth rate of 12.5%. Its shares have gained 14%, over the past three months.
iRobot Corporation has a long-term earnings growth rate of 19.5%. The company’s shares have improved 83% over the past three months.
Atkore International has a long-term earnings growth rate of 10%. The stock has rallied 26% over the past three months.
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