We issued an updated research report on Dover Corporation (DOV Quick QuoteDOV - Free Report) on Feb 2, 2018. Dover will benefit from its efforts to simplify its portfolio, cost-saving actions, drilling activity and opportunities in the fast-growing digital textile printing market.

 

 

Dover’s fourth-quarter 2017 earnings and revenues surged 49% and 13% respectively on a year-over-year basis, and also beat the respective Zacks Consensus Estimate. The strong performance was driven by strong global markets along with cost and productivity improvements. 

 

Bookings at the end of the fourth quarter were worth $1.97 billion, up from $1.74 billion at the end of fourth-quarter 2016. Backlog also increased to $1.23 billion at the end of the quarter from $1.08 billion at the year-ago quarter end. The company is thus poised for an improved first-quarter 2018 performance. Further, significant drilling activity over the last few quarters has created a large backlog of drilled but incomplete wells. Dover anticipates many of these wells to be completed over the coming quarters, consequently driving performance.

 

Dover guides its earnings per share for full-year 2018 to be in the range of $5.73-$5.93, reflecting a 45% rise over the prior year. Full-year revenue growth is projected in the 3-5% range, which comprises organic growth of 5-7% and a favorable impact from foreign exchange of 1%, partially offset by a 3% impact from dispositions. Going forward, Dover anticipates its effective tax rate to be 22-23%, 4 to 5 points lower than its prior effective rate, due to the enactment of the Tax Cuts and Jobs Act.

 

 

Dover continues efforts to simplify its portfolio. Dover has decided to spin-off its Wellsite business into a stand-alone, publicly-traded company and expects the transaction to close by May 2018, subject to certain customary conditions. Dover's Wellsite business that includes Dover Artificial Lift, Dover Energy Automation and US Synthetic, operates in the oil & gas drilling and production industry. This spin-off will help Dover focus on its less volatile core platforms. 

 

Dover had earlier sold the consumer and industrial winch business of Warn and Performance Motorsports International. These steps will aid the company in streamlining business along with investing in market-leading platforms that have strong market positions, margin profiles and are less volatile with bright prospects. Dover is also reviewing cost structure to right size the company and boost margins. The company plans to achieve around $55 million of cost savings in 2018.

 

 

Dover has a long tradition of making successful acquisitions in diverse end markets. During fiscal 2017, the company acquired three businesses in separate transactions for a total consideration of $43.1 million. The businesses were acquired to complement and expand upon existing operations within the Engineered Systems and Energy segments.

 

Recently, Dover acquired Ettlinger and its affiliated entities, in a bid to boost its presence in the plastics and polymers-processing equipment industry. Per the deal, Ettlinger will become a part of the Maag business unit within Dover's Fluids segment. Ettlinger’s high-performance filtration systems will fortify Maag’s position in the plastics-processing equipment industry.

 

 

Dover will benefit from the opportunities in the fast-growing digital textile printing market. From the current 3-4% rate, the company anticipates the penetration rate of digital technology to surge 30% over the next decade. The company’s comprehensive solutions, including equipment, ink and software, positions it well to fully capitalize on this technology shift.

 

Within retail fueling, the EMV upgrade cycle in the United States will accelerate, as customers begin preparing for compliance with payment regulations that go into effect in 2020. Further, Dover’s offering expansion in remote monitoring and software-as-a-service provides ample scope for future expansion. 

 

In refrigeration, food retailers in an effort to manage operating cost and differentiate themselves in the market, are now investing in closed-door refrigeration cases, energy-efficient systems and in specialized display cases. Dover will benefit from this demand as it has a leading position in these categories.

 

The industrial pump business will gain, driven by the increased use of plastics globally and customers' need for improved efficiency. The company commands a leading position in pelletizers and other polymer processing equipment due to its high output, faster changeovers and more compact designs. These catalysts, along with its margin improvement initiatives will drive growth over the next few years.

 

 

Notably, over the past seven days, the estimates for fiscal 2018 and fiscal 2019 have witnessed upward revision of 20% and 17%, respectively, following its upbeat fourth-quarter fiscal 2017 results. The Zacks Consensus Estimate for fiscal 2018 is pegged at $5.53, depicting  year-over-year growth of 37.2%. The same for fiscal 2019 is $6.23, reflecting 12.5% year-over-year growth. 

 

Dover carries a long-term estimated earnings growth rate of 13%. The company has surpassed the Zacks Consensus Estimate in all the four trailing quarters, leading to an average positive earnings surprise history of 13%. 

 

 

Given these positives, Dover outperformed its industry with respect to share price performance in the past year. The stock has gained 34%, while the industry recorded growth of 31%.

 

Dover carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Some other stocks in the same sector include Caterpillar Inc. (CAT Quick QuoteCAT - Free Report) , Graco Inc. (GGG Quick QuoteGGG - Free Report) and Applied Industrial Technologies, Inc. (AIT Quick QuoteAIT - Free Report) . All these stocks carry the same rank as Dover.

 

Caterpillar has an expected long-term earnings growth rate of 10.3%. Its shares have appreciated 70% in the last year.

 

Graco has an expected long-term earnings growth rate of 10.5%. The company’s shares have surged 51% in the past year.

 

Applied Industrial Technologies has an expected long-term earnings growth rate of 12%. Its shares have gone up 22% in the past year.

 

 

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