Dover (DOV) Stock Up 28% YTD: What's Driving The Rally?

Shares of Dover Corporation (NYSE:DOV) have rallied 28% year to date, fueled by its upbeat fourth-quarter 2018 results and 2019 outlook. Also, improved performance in the Engineered Systems and Fluids segments, strong bookings and backlog, cost-reduction initiatives, as well as restructuring programs are some of its key growth drivers.

Dover, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $13.2 billion. The company has an expected long-term earnings per share growth rate of 12%.

The company outpaced the Zacks Consensus Estimate in all of the trailing four quarters, average positive earnings surprise being 6.59%. The stock’s 28% year-to-date rise outperformed the industry’s growth of 17%.

Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:

Strong Q4: Dover’s fourth-quarter 2018 adjusted earnings per share and revenues climbed 25% and 3.2%, respectively, on a year-over-year basis, and also beat the respective Zacks Consensus Estimate. Strong overall demand drove organic revenue growth in the Engineered Systems and Fluids segments, offsetting weak demand in the Refrigeration & Food Equipment segment.

Upbeat Outlook: In 2019, Dover expects to generate adjusted earnings per share of $5.65-$5.85. The company guided full-year revenue growth of 2-3%, comprising organic growth of 2-4% and a 1% impact from the Belanger acquisition, partly muted by an expected 2% unfavorable impact from foreign-currency exchange. On Jan 25, Dover completed the Belanger acquisition, which is expected to be accretive to margins and adjusted earnings in the current year.

Positive Growth Projections: The Zacks Consensus Estimate for Dover’s 2019 earnings is currently pegged at $5.72, reflecting year-over-year growth of 15%. The same for 2020 stands at $6.16, indicating a year-over-year rise of 7.6%.

Growth Drivers in Place

The company’s first-quarter 2019 results are likely to improve on strong bookings growth, solid order backlog, margin improvement and rightsizing programs. Through 2019, impressive performance in the Engineered Systems and Fluids segments, along with stellar organic growth, benefits from cost-containment actions, footprint-optimization projects, and retail refrigeration will negate the impact of weak demand in the segment.

Dover also expects to benefit from its targeted cost-reduction initiative in the current year. The company has executed restructuring programs to better align costs and operations with the current market conditions through targeted facility consolidations, headcount reduction and other measures. The company expects annualized run rate savings of $18 million in 2019.

Dover is progressing well with its efforts to simplify the portfolio and focus on markets with growth prospects. In sync with this, it successfully completed the spin-off of the upstream energy businesses — Apergy — last May. Following the spin-off, the company no longer owns the Energy segment and has three reportable segments. Thus, the divestment will enable Dover to focus on less volatile core platforms by delivering innovative equipment and components, specialty systems, consumable supplies, software and digital solutions, as well as support services.

Dover Corporation Price and Consensus

Stocks to Consider

A few better-ranked stocks in the Industrial Products sector are Mueller Industries, Inc (NYSE:MLI) , Lawson Products, Inc. (NASDAQ:LAWS) and Albany International Corp. (NYSE:AIN) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mueller Industries has an expected earnings growth rate of 2.2% for 2019. The company’s shares have rallied 16%, over the past year.

Lawson Products has an impressive projected earnings growth rate of 102.5% for the current year. The stock has appreciated 14% in a year’s time.

Albany International has an estimated earnings growth rate of 44.7% for the ongoing year. The company’s shares have gained 9.3%, in the past year.

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