Roper Technologies Delivering Good Core Growth As Markets Turn

When I last wrote about Roper (NYSE:ROP), I wasn't totally sold on the valuation given some concerns I had about the business outside of energy and I thought it was a name to reconsider on a pullback into/around earnings. The shares cooperated, pulling back about 5% before a trifecta of good news (the U.S. Presidential election, the Deltek acquisition, and stronger results/orders in the fourth quarter) really stoked up the enthusiasm for these shares.

I've compared Roper to Danaher (NYSE:DHR) before, and I'll do it again - like Danaher, Roper can be a difficult stock for more value-oriented investors, as Wall Street loves the company's growth model and margins and will pay a premium for that growth. That seems particularly true now in a recovery environment where Roper not only seems poised to produce solid growth in absolute terms, but also on a relative basis.

Although Roper doesn't look like a bargain in discounted cash flow model, dropping the discount rate by just 1% gives me a fair value in line with the price today and a high single-digit expected return isn't bad, particularly for a company with good leverage to an emerging oil/gas recovery. Therein lies one of the issues with modeling and price target calculation - a modest change to an assumption or two can swing the result significantly. So while I still can't call Roper a bargain, the growth potential and strong cash flow generation capabilities leave it as a name still worth considering for more aggressive portfolios.

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Roper Technologies Delivering Good Core Growth As Markets Turn