On May 29, we maintained our Neutral recommendation on
), based on expected benefits from its decision to spin off
certain part of its communication technologies its active
acquisition pipeline, bookings and orders growth. However,
continued headwinds for the Printing and Identification and
Energy segments remain a concern for this industrial conglomerate
that produces a wide range of specialized industrial products and
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Dover's first-quarter 2012 adjusted earnings per share increased
9% to $1.10. Total revenue was $2.04 billion in reported quarter,
up 4% year over year. The rise was driven by a 6% contribution
from acquisitions, offset by organic decline of 1% as well as a
minor impact from foreign exchange.
Dover's expansion has been mainly driven by acquisitions. The
company remains committed to its target of achieving annual
organic sales growth of 4% to 6% in the next three years, aided
by acquisition growth of 3% to 5%. In 2012, Dover made
significant addition to its artificial lift portfolio (Production
Control Services) and to the Fluid Solutions platform (Maag Pump
Systems) and refrigeration (Anthony International). The company
expects completed acquisitions to be accretive to its 2013
earnings by 13 cents to 16 cents, largely driven by Anthony.
Dover has recently decided to spin off certain part of its
communication technologies businesses into a standalone, publicly
traded company - Knowles. These businesses mainly manufactures
microphones, speakers, receivers and other products used in
smartphones. The company however will retain businesses in the
communications technologies segment, which make components for
aerospace and defense industries and fluid applications. The
transaction is slated to be completed by 2014.
The communication technologies business was not exactly aligned
with the industrial profile of Dover. This will simplify Dover's
business profile and enable it to focus on its key growth spaces
- Energy, Fluids, Refrigeration & Food Equipment, and
Printing & Identification. Following the spin-off, Dover's
revenue in 2013 on a pro-forma basis is estimated at around $7.4
to $7.6 billion.
Dover's total bookings increased 7% year over year to $2.2
billion in the first quarter, driven by growth in Engineered
Systems, Communication Technologies and Energy segment bookings.
Orders increased 1.4% from the year-ago quarter and 12.4%
sequentially. We expect the book to bill of 1.09x to boost
organic growth in the second quarter.
On the flipside, 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. The North American rig count declined 2.8% year over year
in the first quarter. Even though Dover expects the North
American rig count to continue to improve through the year and
drive a higher rate of growth in the segment, rig count as of May
24, 2013, declined 11% year on year and was 1,762. The outlook
for rig activity in North America continues to be uncertain and
we thus await for an actual improvement in the rig count to drive
growth in the Energy segment.
Furthermore, Dover has access to the volatile semiconductor and
electronics end-markets through its Printing and Identification
segment. The near-term outlook is bleak for semiconductor
manufacturers. The segment's results will also be affected given
its above average exposure to Europe.
Other Stocks to Consider
Other stocks in the industry that are currently performing well
and have a good visibility include
) with Zacks Rank #1 (Strong Buy),
Altra Holdings, Inc.
Broadwind Energy, Inc.
) with Zacks Rank #2 (Buy).