Dover Continues with Inorganic Growth & Strong Bookings
On Nov 26, 2014, we issued an updated research report on Dover Corporation (DOV). The company is poised to benefit from acquisitions, strong bookings and orders and anticipated growth in the Energy segment. However, volatile raw-material costs, rising integration costs from acquisitions, a stronger U.S. dollar and macroeconomic uncertainties might hurt Dover’s growth.
Notably, Dover has a long history of making successful acquisitions in diverse end-markets. In early 2014, Dover acquired MS Printing Solutions S.r.l. in order to expand its Printing and Identification segment beyond the fast moving consumer goods and industrial markets by entering into the textile market. On Jul 30, Dover’s Energy segment acquired The WellMark Company which will add complementary products and expand geographic coverage of valve, chemical injection pump and controls offerings of Dover. Further, in August, Dover’s Fluids segment acquired Liquip International. On Oct 2, Dover acquired Accelerated Companies to bolster its position in the U.S. shale market.
The company reaffirmed organic revenue growth guidance of 4% for 2014 in its third quarter conference call. Acquisitions are expected to contribute 4% to growth. Dover raised total revenue growth projection to 8% from of 6%–7%, for fiscal 2014, on the basis of acquisition and organic revenue growth.
Dover's total bookings increased 10% year over year to $2 billion in the third quarter of 2014, driven by higher bookings in Fluids (14%), Energy (9%), Engineered Systems (11%) and Refrigeration & Food Equipment segments (6%). Dover will continue to benefit from bookings and increase in orders in the coming quarters.
Regarding the fourth quarter, Dover expects solid organic growth in Energy driven by North American well activity, especially in Texas and the Rockies, and improved conditions in compression. Within energy, the company expects U.S. activity to remain solid and looks forward to global growth initiatives. It is expected that bearing demand in the U.S. will increase 4.4% per year to $12.9 billion in 2017, supported by improved conditions in motor vehicle manufacturing. The company also continues to see strong activity in the U.S. market for artificial lift, as the market is estimated to grow at a CAGR of 6.7% for the period of 2013 to 2018.
In Engineered Systems, Dover’s growing global applications for Printing & Identification technology, including the emerging digital textile market and the increasing awareness around food safety, provides ample opportunities for expansion. Within industrial markets, customers’ desire for productivity solutions along with a strong market or auto-related businesses offers significant growth prospects for Dover.
Again increasing regulations regarding vapor recovery and the safe transport of chemicals and fuels provides a strong business climate for Dover’s Fluid Transfer businesses. Additionally, in Refrigeration & Food Equipment, Dover continues to focus on the ongoing needs of customers for productivity and sustainable solutions. The regulatory environment is also acting as a tailwind with regard to energy efficiency standards, which plays to the strength of the company’s product portfolio.
However, Dover trimmed its earnings guidance for 2014 to the new range of $4.75–$4.80 per share from $4.75–$4.85 per share. The reduction in outlook is mainly related to transaction and integration costs from acquisitions.
Further, decline in oil prices remains a matter of concern for Dover. Oil prices declined over 20% since the beginning of 2014. Dover has significant exposure to domestic oil and gas production levels and rig counts through its Energy platform’s supply of consumables to the North American energy sector. Product lines in Energy segment that are most sensitive to rig count are drilling inserts and artificial lift. The drilling & production business is the most levered to U.S. rig counts, which faces obvious risk in the face of the recent decline in oil prices.
Finally, rising macroeconomic uncertainties and limited credit availability can deter capital spending which is an important sales driver for Dover's businesses. Additonally, Dover's businesses are dependent on sustained growth in emerging economies (such as China and India). Expanding production in lower-cost countries can increase exposure to political and monetary instability.
Dover currently carries a Zacks Rank #3 (Hold).
Other Stocks that Warrant a Look
Some better-ranked stocks in the sector include The Babcock & Wilcox Company (BWC), Barnes Group Inc. (B) and EnPro Industries, Inc. (NPO). All these stocks carry a Zacks Rank #2 (Buy).
Read the Full Research Report on DOV
Read the Full Research Report on BWC
Read the Full Research Report on B
Read the Full Research Report on NPO
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