Transportation technologies-focused Roper Technologies (NYSE:ROP) announced a big sale on Friday.
The move gave the company some extra capital to work with, but also reduced its effectiveness on one key point. The extra capital is welcome news, but the loss may be too high to bear. Thus, I'm slightly bullish on Roper Technologies.
Roper Technologies had a rough start to the year, spending the first two months in a general slide. However, the company rebounded from that slide, and surpassed its starting point for 2021 by a fairly wide margin.
The company began the year with a closing price of $419.55, before sliding to a low for the year of $356.23 on March 4. From there, however, the expansion started, and the company hit a high for this year of $499.21 on July 23.
The high proved unsustainable as it began a slow slide ever since. (See Roper Technologies stock charts on TipRanks)
The latest move that gave Roper Technologies a bit of a bounce up on Friday featured a planned sale of part of its business. Specifically, Roper is selling its TransCore operations to Singapore Technologies Engineering (SGGKF) in a straight cash deal valued at $2.7 billion. The company will use that cash in pursuit of other acquisitions.
Roper's TransCore operations focuses mainly on “intelligent transportation systems,” which include items like traffic management and toll-related systems.
Wall Street's Take
Wall Street consensus analysis calls Roper Technologies a Moderate Buy, based on seven Buy ratings, one Hold rating, and one Sell rating. The average Roper price target of $522.33 implies upside potential of 16.8%
All a Matter of Timing?
Getting rid of TransCore makes some sense for Roper Technologies. TransCore is heavily focused on certain parts of infrastructure connected to cities. Roper, meanwhile, has a bit more broader focus than smart cities. A look at its stated strategy suggests that it would stay out of the smart cities market as, at least in the United States, as it's not exactly a priority item.
In fact, getting rid of TransCore is in keeping with one of Roper's key strategic points: Strategic Reinvestment of Cash. Also, Roper is focused on “Significant Growth Platforms,” and smart cities have been a much bigger deal elsewhere.
Some here might point out that Roper Technologies will be releasing its third-quarter financial results on October 22. A sudden multi-billion dollar cash infusion might help shore up a flagging result somewhere else.
However, there's a problem with that assessment. Roper announced the sale on October 3. Roper's third-quarter results stop on September 30. There is a potential connection elsewhere, however. The company announced a dividend of $0.5625 per share back on September 17. Roper has done quite well in keeping up its dividend in recent years; back in 2017 it announced its 25th consecutive annual dividend increase.
The biggest issue still remains. With the Biden Administration on a tear for infrastructure projects, why would a U.S. company divest part of its infrastructure operations?
It would seem like this is a great time to be in infrastructure, so it can get hands on some of that freely spent government cash. Perhaps Roper saw the intense budget wrangling that came with the potential — and narrowly averted at last report — government shutdown. From there, it might have figured its chances of getting in on the deal were slim.
Concluding Views
It's unclear why Roper Technologies would choose to get rid of an infrastructure-focused operation when the current political climate is calling for infrastructure building. There are potential reasons, of course. Some of them are quite in line with Roper's overall philosophy.
Roper's regular dividend is an attractive measure of its financial health, and its remaining infrastructure focus should serve it well going forward.
While the uncertainty of its sale remains, and the high price of its shares is somewhat concerning, the idea that this company has farther upward potential to go is rather undeniable.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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