Roper's Acquisitions to Drive Growth, Debt Remains a Drag - Analyst Blog

We have issued an updated research report on Roper Industries, Inc.ROP on Apr 9, 2015.

The company reported encouraging fourth-quarter and full year 2014 results with both revenues and earnings growing on a year-over-year basis. However, its balance sheet was highly leveraged at year end.

Roper has expanded its business primarily through accretive acquisitions. In 2014, acquisitions contributed 3% each to revenues and order growth. So far in 2015, Roper has made three acquisitions worth $590 million and expects to generate about $100 million in revenues per year from these businesses. The company has an optimum mix of highly engineered, niche-oriented products, which help it to gain market share.

Another key factor driving growth for the company is its unique asset-light business model that helps it to remain less dependent on large-scale production equipment. This enables the company to remain profitable even when sales are declining during a recession. The asset-light business model also enables Roper to generate strong cash flow, which will help the company to increase dividend payout going forward.

However, apart from high-debt levels, macroeconomic concerns, integration issues due to acquisitions and intensifying competition remain headwinds. Also, the frequent acquisitions can negatively impact its balance sheet in the form of a high level of goodwill, which totaled $4.71 billion or 56% of total assets at the end of Dec 31, 2014.

As of Dec 31, 2014, total debt was $2.2 billion. The company had a net debt position of $1.59 billion and a debt-capital ratio of more than 31%. The high debt burden may limit future expansion and aggravate the company's risk profile.

Furthermore, stiff competition from the likes of Danaher Corp. DHR , Dover Corp. DOV and Ingersoll-Rand Plc IR remains a concern for Roper.

Negative estimate revisions over the last 30 days led to a marginal decline of 0.1% in the Zacks Consensus Estimate to $6.84 per share for 2015. For 2016, the Zacks Consensus Estimate decreased 0.3% to $7.39 per share over the same time frame.

Roper currently has a Zacks Rank #3 (Hold).

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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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