Here's Why You Should Hold on to Nordson (NDSN) for Now

We issued a research report on Nordson CorporationNDSN on Mar 5. A well-diversified business portfolio and meaningful buyouts are key drivers for the company. On the flip side, cost and debts, as well as risks related to international operations, remain concerns.

The company, with a market capitalization of approximately $7.9 billion, carries a Zacks Rank #3 (Hold).

Below, we briefly discussed the company's potential growth drivers and possible headwinds.

Factors Favoring Nordson

Share Price Performance and Earnings Estimates Revision: Nordson's financial performance was better than expected in three of the last four quarters and in line with expectations in one quarter. Average earnings surprise was a positive 3.91%.

In the last three months, the company's shares have yielded 6.9% return, outperforming 1% decline of the industry .

Underpinning the favorable sentiments reflects positive revisions in earnings estimates for the stock. In the last 30 days, five brokerage firms have raised estimates for both fiscal 2018 and fiscal 2019. Currently, the stock's Zacks Consensus Estimate is pegged at $6.33 for fiscal 2018 (ending October 2018) and $7.05 for fiscal 2019 (ending October 2019), representing the growth of 0.8% and 2.8% from their respective tallies, 30 days ago.

Near- and Long-Term Growth Potential Solid: Nordson operates through three business segments - Adhesive Dispensing Systems, Advanced Technology Systems and Industrial Coating Systems - largely minimizing its risks of loss from poor performance of any single group. Also, a vast customer base in various end-markets, including packaging, non-wovens, polymer processing, products assembly, electronic systems, fluid management, test and inspection, container coating, curing and drying systems, liquid finishing and powder coating, is beneficial. Moreover, the company's commitment toward rewarding shareholders through dividends will continue building positive sentiments. In August 2017, the company hiked its quarterly dividend rate by 11%.

For second-quarter fiscal 2018, the company anticipates sales to increase in the range of 9-13% year over year, including the 7% contribution from buyouts and 5% from favorable foreign currency movements.

Over the long-term (2018 to 2023), the company anticipates revenue growth to be roughly twice the global GDP percentage while aiming to improve its operating margin in excess of revenue growth percentage.

Buyouts - Key to Expansion: Over time, acquired assets have helped Nordson penetrate into the new and unexplored markets and expand operations in existing ones. In calendar 2017, the company acquired certain assets of ACE Production Technologies, Inc., 100% shares of Plas-Pak Industries, Inc., InterSelect GmbH and Advanced Technologies business of Vention Medical. All these assets have strengthened the company's businesses under Advanced Technology Systems segment.

Further, the company acquired Sonoscan, Inc. in January 2018, while its subsidiary - Nordson ASYMTEK - added the PCP product lines of Infiniti Dosing o.m.s. to its portfolio in the same month. The Sonoscan buyout will strengthen the company's test and inspection business, while the PCP product line buyout will expand the company's reach in the dispensing and dosing markets. These buyouts will be integrated with Nordson's Advanced Technology Systems segment.

Factors Working Against Nordson

Rising Costs & Expenses, Huge Debts Raise Concerns: Norson is dealing with adverse impacts of rising costs and expenses. In the first quarter of fiscal 2018, its cost of sales grew 36.8% year over year while selling and administrative expenses rose 22.8%. Also, the company's long-term debt was approximately $1,258.8 million while exiting the quarter. We believe, if unchecked, rising costs and expenses, and huge debt levels can be detrimental to the company's profitability in the quarters ahead.

Threats From International Expansion: Global expansion has exposed Nordson to risks arising from adverse movements in foreign currencies. Also, uncertainties in the economic growth of the countries served can severely impact the company's businesses. Notably, the company has operations in more than 35 countries with manufacturing facilities in the United States, the People's Republic of China, Germany, Mexico, Netherlands, Thailand and the United Kingdom.

Industry Competition: Nordson faces stiff competition from companies offering similar products and services or those producing different items for same uses. Also, difficulties or delays in research and development or production and services, apart from the failure of new products and technologies in the market, might hurt the company's competitive edge.

Some key players in the industry, sporting a Zacks Rank #1 (Strong Buy) are Applied Industrial Technologies, Inc. AIT , Dover Corporation DOV and Roper Technologies, Inc. ROP . You can see the complete list of today's Zacks #1 Rank stocks here .

In the last 60 days, earnings estimates for each of these stocks have improved for the current year and the next year. Also, average positive earnings surprise for the last four quarters was 10.97% for Applied Industrial, 7.26% for Dover and 3.12% for Roper.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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