We reiterate our Neutral recommendation on
Dover Corporation
(
DOV
) as it has downgraded its earnings guidance due to uncertain
economic conditions in Europe, unfavorable foreign exchange rates
and a slightly higher tax rate.
Dover reported its first-quarter 2012 earnings of $1.05 per share,
outperforming the Zacks Consensus Estimate of $1.01. Results were
19% above the year-ago earnings of 88 cents per share. Total
revenue improved 14% to $2.06 billion, beating the Zacks Consensus
Estimate of $1.99 billion.
Dover's expansion has been mainly driven by acquisitions and its
acquisition pipeline is ever active. The company acquired the
leading provider of artificial lift products and services for the
oil and gas industry, Production Control Services, Inc.
Production Control Services, in its turn, will complement the
Norris Production Solutions, an operating unit within Dover's
Energy segment. Dover will be able to foray into the artificial
lift market with a wider and diversified range of products. The
company invested $220 million to acquire Production Control
Services and diligently pursue its strategy to become the market
leader in the field of artificial lift.
Dover has considerable exposure to the international market (41% of
sales coming from outside of North America in 2011) and has been
successful in winning new contracts in the overseas markets.
Business activities ramped up in the emerging markets of the Middle
East, Australia and Russia. The Energy segment has recently won a
major contract which will significantly increase its market share
in Australia.
Dover has downgraded its earnings guidance to a range of
$4.70-$4.85 from the prior guidance of $4.80-$5.00. Compared with
the prior fiscal year's earnings of $4.26, Dover's new guidance
reflects annual growth of 10% to 14%, down from the previous
expectation of 13% to 17%.
Furthermore, margins may face headwinds from restructuring
activities in the next quarter as Dover expects to invest roughly
around $5 million in these activities. The company's investments in
its restructurung programes are important as it is keen to capture
the growing market opportunities.
Dover has access to the volatile semiconductor and electronics
end-markets through its Printing and Identification segment. Lower
volumes reduced operating leverage in the semiconductor business
during the first-quarter 2012. As regards development, we do not
expect anything noteworthy in the semiconductor sector in 2012 and
thus remain cautious regarding the outlook for Printing and
Identification.
Moreover, Dover faces tough competition from companies like
Cooper Industries plc
(
CBE
) and
Weatherford International Ltd.
(
WFT
). Our recommendation on Dover is in line with a short-term Zacks
#3 Rank (Hold).
COOPER INDS PLC (CBE): Free Stock Analysis
Report
DOVER CORP (DOV): Free Stock Analysis Report
WEATHERFORD INT (WFT): Free Stock Analysis
Report
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