Dover Corporation (DOV - Free Report) has been displaying an impressive performance, aided by solid backlog across its segments, cost-reduction initiatives, acquisitions as well as new product development. However, the coronavirus pandemic’s unfavorable impact on the company’s end-market demand is a concern.
Dover, based in New York, is an industrial conglomerate producing a wide range of specialized industrial products and manufacturing equipment. The company currently carries a Zacks Rank #3 (Hold) and has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) 2 (Buy) or 3, offer the best investment opportunities.
The stock has a long-term expected earnings per share growth rate of 11.5%, higher than the industry’s 10.8%.
Dover’s shares have gained 0.8% over the past year, as against the industry’s decline of 5.9%.
Factors Favoring Dover
Positive Earnings Surprise History
Dover outpaced the Zacks Consensus Estimate over the trailing four quarters, the average positive beat being 7.13%.
Looking at Dover’s price-to-earnings ratio, its shares are underpriced at the current level, which seems attractive for investors. The company has a trailing P/E ratio of 16.0, lower than the industry average of 20.8.
Growth Drivers in Place
Dover is poised to gain from robust order backlog across its segments in second-quarter 2020. In the Engineered Products segment, the waste handling business continues to gain traction on increase in residential volumes. In Fueling Solutions, retail fueling will gain from high fuel margins on low oil prices. Moreover, the Marketing and Coding segment will gain from strong demand for consumables as consumers shift to home-based consumption of packaged goods. In the Pumps & Process Solutions segment, robust demand for food and beverage, power generation as well as solid growth in the biopharma and hygiene market owing to the coronavirus pandemic will likely be conducive to the segment’s performance in the ongoing quarter.
Dover’s cost-reduction initiatives will bolster its margins despite the uncertainties related to the pandemic. In addition, the company will gain from product digitization, e-commerce, new product development and inorganic investment in core business platforms.
Dover has a long tradition of making successful acquisitions in diverse end markets. In 2019, the company acquired three businesses for a total consideration of $216.4 million. It made these acquisitions to complement and expand upon the existing operations within the Fueling Solutions and Pumps & Process Solutions segments. This January, Dover completed the acquisition of Systech International in order to expand software and services within Markem-Imaje business. Dover is on track to integrate Systech, which places it well to increase its backlog in the segment. The company entered into an agreement to acquire Em-tec, in a bid to expand its presence in the biopharma market.
Few Hurdles to Counter
Dover’s performance has been affected by the coronavirus pandemic and related measures imposed by governments as well as the related business uncertainties. In the June-end quarter, the company expects a year-over-year drop in demand in the United States and Europe. Further, the company will curtail production capacity on weak demand across its businesses.
The company’s digital textile printing business will be affected in the current year as apparel markets have been hit hard by the shutdown of apparel retail globally. Weak oil and gas markets are likely to hurt the Pumps & Process Solutions business in the current quarter. Moreover, the company’s Refrigeration & Food Equipment segment has been bearing the brunt of soft food and retail construction markets. These factors are likely to dampen margins in the near term.
Investors might want to hold on to the stock, at present, as it has ample prospects for outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are Silgan Holdings Inc. (SLGN - Free Report) , Broadwind Energy, Inc. (BWEN - Free Report) and Axon Enterprise, Inc. (AAXN - Free Report) . While Silgan sports a Zacks Rank #1, Broadwind Energy and Axon carry a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Silgan has a projected earnings growth rate of 11.3% for 2020. The company’s shares have gained 15% in the past three months.
Broadwind Energy has an expected earnings growth rate of 174% for the current year. The stock has appreciated 6% over the past three months.
Axon has an estimated earnings growth rate of 14.4% for the ongoing year. The company’s shares have rallied 21.3% in three months’ time.
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