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Dover (DOV) Rides on Strong Bookings Amid Cost Inflation

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On Sep 28, we issued an updated research report on Dover Corporation (DOV - Free Report) . The company’s performance will be backed by strong bookings, focus on cost-reduction initiatives and acquisitions. However, its results might be marred by issues in the Fluids segment, foreign-exchange volatility and tariffs.

Let’s illustrate these factors in detail.

Strong Bookings to Drive Growth

Dover’s bookings improved around 6.8% year over year to $1.89 billion at the end of second-quarter 2018. Backlog also increased to $1.38 billion at the end of the quarter from $1.26 billion witnessed at the end of the year-ago quarter. Backed by stellar bookings growth, the company is poised for an improved third-quarter 2018 performance. In addition, solid bookings in Engineered Systems and Fluids, and a strong book-to-bill will drive the company’s organic revenues in 2018.

Focus on Cost Cuts Supports Dover

Dover expects to benefit in 2018 from targeted cost-reduction initiatives.. The company executed restructuring programs to better align the costs and operations with the current market conditions through targeted facility consolidations, headcount reduction, and other measures.

Acquisitions — Key Growth Driver

Dover has a history of making successful acquisitions in diverse end markets. During 2017, the company acquired three businesses in separate transactions for a total consideration of $43.1 million. In January 2018, Dover acquired Ettlinger Group, in a bid to boost its presence in the plastics and polymers processing equipment industry. Ettlinger’s high-performance filtration systems will fortify Dover’s Maag business’ position in the plastics-processing equipment industry. Further, the buyout of Rosario Handel B.V. — a manufacturer of decorator and base coating machinery — will help serve Dover’s Food Equipment end market in the Refrigeration & Food Equipment segment.

Concerns in Fluids Segment to Mar Results

In Dover’s Fluids segment, the DFS business posted negative earnings conversion in the second quarter. This was led by the prevalent operational costs due to the European footprint consolidation, significant supply chain costs and accelerated fees and discrete items. The company expects that a significant portion of these issues will persist till the end of the current quarter.

Foreign Exchange Volatility to Impede Growth

Dover’s performance will bear the brunt of foreign exchange volatility. Notably, foreign exchange was a tailwind of about 4% in first-quarter 2018, which decelerated to a tailwind of about 2% in the second quarter as a result of the U.S. dollar appreciating against other trading currencies.

Tariffs Remains a Woe

The company expects that the tariffs imposed by the Trump administration on steel and aluminum products, as well as the tariffs on goods imported from China, may affect results, if it is unable to pass price increases to customers.

Share Price Performance

Over the past year, Dover has underperformed its industry with respect to price performance. The stock has lost around 4%, while the industry has recorded growth of around 7% during the same time frame.

Zacks Rank & Key Picks

Dover carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Flowserve Corporation (FLS - Free Report) , Chart Industries, Inc. (GTLS - Free Report) and IDEX Corporation (IEX - Free Report) . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Flowserve has a long-term earnings growth rate of 17.3%. The company’s shares have rallied 30% over the past year.

Chart Industries has an estimated long-term growth rate of 28.8%. Its shares have surged 95% in a year’s time.

IDEX has a projected long-term growth rate of 11%. Its shares have rallied 23% over the past year.

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