Dover (DOV) To Grow On Acquisition Strategy, Risks Remain

We issued an updated research report on Dover Corporation (NYSE:DOV) on Jun 15, 2016. The company will benefit from its acquisition strategy and leading technology. However, Dover continues to face significant headwinds in energy-related markets, foreign exchange volatility and lower order activity.

Notably, Dover has a long-standing history of making successful acquisitions in diverse end markets. During the fourth quarter of 2015, Dover completed three buyouts across the Fluids segment and the Printing & Identification platform of the Engineered Systems segment. In 2015, Dover made a total of four acquisitions for $567.8 million.

Dover recently closed the takeover of Tokheim's dispenser and system businesses, which became part of OPW, a business unit within its Fluids segment. The buyout will enhance OPW's robust position in retail fueling equipment. Dover’s recent acquisitions, net of closing costs and accounting adjustments, should contribute about 18 cents to 2016 EPS.

On Jun 9, Dover announced to acquire Wayne Fueling Systems Ltd. from Riverstone Holdings LLC for $780 million. The buyout will augment Dover’s portfolio and also provide significant margin enhancement opportunities. The transaction is expected to close in the second half of 2016, subject to customary closing conditions. The company expects to ink several deals over the next few quarters in its key growth markets.

Within Refrigeration and Food Equipment, Dover’s plans for organic revenue growth and margin improvement remain on track, heading into the seasonally strong second and third quarters. Leading technology and merchandising solutions are resulting in customer wins at several regional and national food retail chains.

However, the company faced significant headwinds in energy-related markets in 2015. Reduced demand and decline in customer inventory in the company’s North-American Energy markets, along with reduced customer capital spending in retail refrigeration as well as oil and gas related pump markets, continue to affect results. Further, a large decline in the U.S. rig count will hurt growth.

The company thus narrowed its full-year 2016 earnings per share guidance range to $3.57–$3.72 (excluding one-time items). It also expects full-year revenues to decline 2%–5%, a three-point reduction from the previous projection. Within this forecast, organic revenue is anticipated to drop 5%–8%, four points below prior expectations.

Further, Dover’s bookings at the end of first-quarter 2016 were $1.68 billion, down roughly 4% year over year. Backlog also declined to $1.07 billion at the end of the reported quarter from the year-ago quarter end. This does not bode well for the company’s second-quarter 2016 performance.

Dover currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the same sector are Gorman-Rupp Co. (NYSE:GRC) , Kadant Inc. (NYSE:KAI) and Nordson Corp. (NASDAQ:NDSN) . All these three stocks sport a Zacks Rank #1 (Strong Buy).


DOVER CORP (DOV): Free Stock Analysis Report

NORDSON CORP (NDSN): Free Stock Analysis Report

KADANT INC (KAI): Free Stock Analysis Report

GORMAN RUPP CO (GRC): Free Stock Analysis Report

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