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Here's Why You Should Consider Buying Donaldson (DCI) Now

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We believe that Donaldson Company, Inc. (DCI - Free Report) is a solid choice for investors seeking exposure in the pollution control space.
 
The stock, with roughly $7.4-billion market capitalization, has been upgraded to a Zacks Rank #1 (Strong Buy) on Sep 12.

The company delivered better-than-expected results in two out of the last four quarters while lagging estimates in one and posting in-line results in one. Average earnings surprise was positive 2.29%.

Why the Upgrade?

We are providing a snapshot of how Donaldson fared in fourth-quarter fiscal 2018 (ended July 2018). Though the company’s earnings of 58 cents per share came in line with the Zacks Consensus Estimate, it increased 13.7% from the year-ago tally. Net sales went up 9.8% year over year on the back of 14% sales growth in Engine Products and 1.9% increase in Industrial Products.

Donaldson stands to gain from growing demand for replacement and first-fit products offered under its two segments — Engine Products and Industrial Products. It is worth mentioning here that roughly 70% of the Engine Products segment’s sales are sourced from replacement products while around 40% is generated from the Industrial Products segment.

In addition, solid geographical footprint, past program wins and focus on returning higher value to shareholders remain a boon for Donaldson. The company also makes investments to boost technological expertise, develop innovative products, enhance existing production capacity and promote e-commerce business.

Another interesting aspect about Donaldson is its acquisitive nature. It completed five acquisitions since fiscal 2015. Of late, it has agreed to acquire 88% stake in U.K.-based BOFA International LTD. The buyout will be completed in first-quarter fiscal 2019 (ending October 2018). The assets acquired will become part of its Industrial Products segment, largely benefiting the segment’s Industrial Filtration Solutions business.

Donaldson anticipates its Engine Products segment to gain from prevailing tailwinds, including solid On-Road, Off-Road, Aerospace and Defense, and Aftermarket business, in the near term. Also, strengthening Special Applications and Industrial Filtration Solutions businesses will drive the Industrial Products segment. The company expects sales to grow 6-10% in fiscal 2019. This, along with effective pricing actions and cost control measures, will be beneficial for bottom-line results. Earnings per share are predicted to be $2.29-$2.43 in fiscal 2019, higher than $2.00 recorded in fiscal 2018.

In the past 7 days, the company’s earnings estimates for fiscal 2019 (ending July 2018) and fiscal 2020 (ending July 2020) have been revised upward by six and three brokerage firms, respectively. The Zacks Consensus Estimate for earnings now stands at $2.37 for fiscal 2019 and $2.61 for fiscal 2020, reflecting growth of 4.4% (for both the years) from the respective 60-day-ago tallies.

Donaldson Company, Inc. Price and Consensus

 

Donaldson Company, Inc. Price and Consensus | Donaldson Company, Inc. Quote

Moreover, the company’s price performance has been impressive since the release of fiscal fourth-quarter results, with the stock yielding 6.2% return. This was way above 3.6% growth recorded by the industry.



Other Stocks to Consider

Other top-ranked stocks in the industry are Energy Recovery, Inc. (ERII - Free Report) , Tetra Tech, Inc. (TTEK - Free Report) and Advanced Emissions Solutions, Inc. (ADES - Free Report) . While Energy Recovery sports a Zacks Rank #1, both Tetra Tech and Advanced Emissions Solutions carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for each of these stocks improved for the current year and the next year. The average positive earnings surprise for the last four quarters was 261.11% for Energy Recovery, 10.85% for Tetra Tech and 16.40% for Advanced Emissions Solutions.

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