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Dover Rides on Strong Bookings Growth, Input Costs High

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On Mar 5, we issued an updated research report on Dover Corporation (DOV - Free Report) . Dover is poised to gain from improved performance in the Engineered Systems and Fluids segments, strong bookings and backlog, cost-reduction initiatives as well as restructuring programs. However, inflated input costs and impact of weak retail refrigeration markets remain concerns.

The Zacks Consensus Estimate for 2019 earnings is currently pegged at $5.73, reflecting expected year-over-year growth of 15.3%. The same for first-quarter 2019 is pegged at $1.14. The stock also has expected long-term earnings per share (EPS) growth rate of roughly 12%.

Strong Q4 Results

Dover’s fourth-quarter 2018 adjusted earnings and revenues climbed 25% and 3.2%, respectively, on a year-over-year basis. The metrics also beat their respective Zacks Consensus Estimate. Strong overall demand drove organic revenue growth in the Engineered Systems and Fluids segments, which offset weak demand in the Refrigeration & Food Equipment segment.

Upbeat Guidance

For 2019, Dover expects to generate adjusted EPS at $5.65-$5.85. The company projects full-year revenue growth in the range of 2-3%, which comprises organic growth of 2-4% and a 1% impact from the Belanger acquisition. This is likely to be partly offset by an expected 2% unfavorable impact from foreign currency exchange. On Jan 25, 2019, Dover completed the Belanger acquisition, which is expected to prove accretive to margins and adjusted earnings in 2019.

Growth Drivers in Place

The company’s first-quarter 2019 results are likely to improve on strong bookings growth, solid order backlog, margin improvement and rightsizing programs. Through 2019, impressive performance in the Engineered Systems and Fluids segments along with strong organic growth, benefits from cost-containment actions as well as footprint optimization projects and retail refrigeration will negate the impact of weak demand in the segment.

Dover also expects to benefit in 2019 from its targeted cost-reduction initiative. The company has executed restructuring programs to better align costs and operations with current market conditions through targeted facility consolidations, headcount reduction and other measures. The company expects annualized run rate savings of $18 million in 2019.

Dover progresses with efforts to simplify the portfolio and focus on markets with growth prospects. In sync with this, it has successfully completed the spin-off of the upstream energy businesses — Apergy — in May 2018. Following the spin-off, the company no longer has the Energy segment and has three reportable segments. Thus, the divestment will enable Dover to focus on less volatile core platforms by delivering innovative equipment and components, specialty systems, consumable supplies, software and digital solutions as well as support services.

Weak Retail Refrigeration Markets, Rising Costs a Concern
 
The Refrigeration & Food Equipment segment has been bearing the brunt of weak retail refrigeration markets for the past few quarters. In the fourth quarter of 2018, the segment was negatively impacted by delayed shipments in the Belvac business. Demand and pricing in the segment will be weak in 2019 due to persistent softer-than-expected demand conditions in retail refrigeration. The company also expects increased rightsizing costs in 2019.
 
Tariffs imposed on steel and aluminum products have led to higher input costs. This, in turn, will dent margins if the company is not able to pass the price increases to customers.

Dover Corporation Price and Consensus

 

 

Zacks Rank and Stocks to Consider

Dover currently carries a Zacks Rank #3 (Hold)

A few better-ranked stocks in the Industrial Products sector are Mueller Industries, Inc (MLI - Free Report) , Terex Corporation (TEX - Free Report) and Albany International Corp. (AIN - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Mueller Industries has an expected earnings growth rate of 2.2% for 2019.
 
Terex has an expected earnings growth rate of 41.2% for the current year.
 
Albany International has an expected earnings growth rate of 44.7% for 2019.

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