Dover Looking To Exit Energy

Analysts have been speculating about Dover's (NYSE:DOV) long-term commitment to its upstream energy business for a little while now, and earlier this week management acknowledged that after completing a strategic review they were looking at “strategic alternatives” for the business. A sale would seem to be the preferred outcome, but management seems committed to getting out of this industry and a spin-off (similar to what the company did with Knowles (NYSE:KN)) is also on the table.

I'm skeptical that this move will add significant value, but I can understand the timing and at least some of the rationale. I think the energy recovery is likely to slow down and the energy segment won't be as much of a contributor to Dover's growth in 2018. What's more, the company is going to have to start reinvesting in the business fairly soon and I believe management is wary of the “tail wagging the dog” and the impact that this segment has had on company valuation. 

Dover shares have been strong since my last update, up close to 15% and well ahead of the S&P 500, as well as peers like Illinois Tool Works (NYSE:ITW) and General Electric (NYSE:GE). The shares have closed that relative undervaluation gap I saw back in May, but investors could still push this higher on optimism around the energy sale process.

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Dover Looking To Exit Energy