Dover Corporation DOV remains well poised for growth from acquisitions, new product development, strong bookings and cost-reduction initiatives. However, input-cost inflation and softer demand conditions in retail refrigeration remain concerns.
The company has a market capitalization of approximately $12.4 billion and currently carries a Zacks Rank #3 (Hold).
Below, we briefly discuss the company's potential growth drivers and possible headwinds. Factors Favoring Dover Cheap Valuation
Dover's trailing 12-month P/E ratio is 17.1, while the industry's average trailing 12-month P/E is 20.1. Consequently, the stock is cheaper at this point based on the ratio. Growth Drivers in Place
Dover's bookings at the end of third-quarter 2018 were worth $1.72 billion, up from $1.67 billion at the end of third-quarter 2017. Backlog increased 12% year over year to $1.34 billion at the end of the reported quarter. This will continue in fourth-quarter 2018 as well. Backed by solid bookings growth, the company is poised for an improved fourth-quarter performance.
Dover will also gain from product digitization, e-commerce, new product development, and inorganic investment in core business platforms. It is also expected to benefit from targeted cost-reduction initiatives. The company also executed restructuring programs to better align costs and operations with the current market conditions through targeted facility consolidations, headcount reductions and other measures. Notably, it announced a formal restructuring program to reduce group wide SG&A expenses on its investor day in September 2018. Rightsizing initiatives are well on track. In the third quarter, the company realized $8 million in cost savings and expects $16 million of incremental benefits in the next quarter.
Further, Dover will benefit from acquisitions. In January 2018, Dover acquired Ettlinger Group, in a bid to boost its presence in the plastics and polymers processing equipment industry. Ettlinger's high-performance filtration systems will fortify Dover's Maag business' position in the plastics-processing equipment industry. Also, the buyout of Rosario Handel B.V., a manufacturer of decorator and base coating machinery used in the production of beverage, food and aerosol cans, will help serve the Food Equipment end market within the Refrigeration & Food Equipment segment. Headwinds Ahead
Dover's results in 2018 will be hurt by input-cost inflation due to the implementation of tariffs. Tariffs imposed by the Trump administration on steel and aluminum products, as well as on goods imported from China are inflating input costs. This, in turn, will dent margins if the company is unable to pass the price increases to customers.
In addition, Dover's Refrigeration & Food Equipment segment has been bearing the brunt of weak retail refrigeration markets on its revenues for the past few quarters. In the third quarter, the segment was also affected by delayed shipments in the Belvac business. Revenues in the segment will remain weak in fiscal 2018 due to continued weaker-than-expected demand conditions in retail refrigeration. Price Performance
Over the past year, Dover has underperformed the industry
with respect to price. The stock has lost around 11%, while the industry fell 3%.
Investors might want to hold on to the stock, at present, as it has ample prospects of outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the same sector are Enersys ENS , CECO Environmental Corp. CECE and Rexnord Corporation RXN . While Enersys flaunts a Zacks Rank #1 (Strong Buy), CECO and Rexnord carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Enersys has a long-term earnings growth rate of 10%. Its shares have rallied 21%, over the past year.
CECO has a long-term earnings growth rate of 15%. The company's shares have surged49%, in the past year.
Rexnord has a long-term earnings growth rate of 16.4%. The stock has gained 14% in a year's time.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Rexnord Corporation (RXN): Free Stock Analysis Report Dover Corporation (DOV): Free Stock Analysis Report CECO Environmental Corp. (CECE): Free Stock Analysis Report Enersys (ENS): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research