Growth Story Not Over For Dover

9/16/2013


  Recent Price
$90
  Dividend
$1.50
  Yield
1.7%
  P/E Ratio
19
  Shares (millions)
173
  Long-Term Debt as % of Capital
31%
  52-Week Price Range
$89.64 - $54.90

Dover ($90; DOV) generates steady, organic growth while grazing on smaller businesses, completing more than 100 deals since the start of 2000. Those efforts have built Dover a portfolio of industrial products and manufacturing equipment that reaches a broad base of end markets, including medical devices, petroleum, automotive, commercial refrigeration, agricultural, and mobile devices.

Management sees revenue rising 7% to 9% this year, with 4% of that growth coming from acquisitions. Dover expects per-share profits of $5.20 to $5.35 excluding special items, implying growth of 17% to 20%. Rising analyst estimates project earnings of $5.30 per share. Dover, scoring above 60 in all six Quadrix categories, is a Long-Term Buy.

Business breakdown

Dover spent $2.6 billion on 22 acquisitions from 2010 to 2012 while selling four lower-margin units for a total of $517 million. Four acquisitions in the first half of 2013 totaled $69 million. In August, Dover announced plans to acquire an Italian company with $80 million in annual revenue but provided no details about the cost. We expect continued acquisitions over the next year, with a focus on international deals.

Last year, Dover's operating profit margin reached its highest level since 1981, with gross margin the best since at least 1979. Both margins expanded further in the first half of this year, and management sees that trend continuing through 2015.

The energy segment (26% of 12-month sales, 38% of profits) sells components and compressor products to drillers and refiners, primarily in North America. The production end market, accounting for more than half of the segment's revenue, continues to post strong gains, while the drilling industry has stabilized.

Engineered systems (42%, 36%) sells pumps, compressors, and equipment for cooling and displaying food. Refrigeration and foodservice equipment drove the unit's 10% sales growth in the past 12 months.

The printing and identification business (13%, 11%) sells equipment for marking and coding products made by the drug and food industries. This unit has accounted for most of Dover's profit-margin gains.

Communications technology (19%, 15%) should help drive Dover's sales this year. With organic growth projected at 9% to 11%, the segment makes components used in hearing aids, smartphones, and even aircraft.

Conclusion

Through 2015, Dover expects organic sales growth of 4% to 6%, complemented by 3% to 5% from acquisitions. Dover's annual free cash flow should equal about 10% of sales.

Historically, Dover has returned a lot of its cash to shareholders. The company has raised its dividend in each of the past 58 years, including a 7% hike last month. Stock buybacks have reduced Dover's outstanding shares by 7% in the past year.

At 18.5 times trailing earnings, shares trade 7% above their 10-year average but 10% below the industry median. An annual report for Dover Corp. can be obtained at 3005 Highland Parkway, Downers Grove, IL 60515; (630) 541-1540; www.dovercorporation.com.

DOVER
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '13
1.36
vs.
1.10
9%
87.05
-
67.98
19 - 15
Mar '13
1.10
vs.
1.01
4%
74.76
-
67.45
17 - 15
Dec '12
1.09
vs.
1.02
0%
69.72
-
58.24
16 - 13
Sep '12
1.25
vs.
1.08
-2%
61.64
-
52.59
15 - 12
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2012
8.10
4.44
1.33
67.20
-
50.27
15 - 11
2011
7.95
3.87
1.18
70.15
-
43.64
18 - 11
2010
7.13
3.74
1.07
59.20
-
40.50
16 - 11
2009
5.78
1.99
1.02
43.10
-
21.79
22 - 11
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
92
80
62
83
64
84
78

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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