Tuesday, February 26, 2019

Roper Getting Its Due As A Differentiated Value-Creator

Exclude valuation from the conversation, and I’m not sure how many negatives you can really come up with for Roper (ROP). Not only has Roper shown that it can identify, execute, and integrate acquisitions just as well as peers like Danaher (DHR) but management has used M&A to transform the business into a self-funding, niche-focused, asset-light multi-industrial with a very strong recurring revenue component driven by a diverse SaaS and medical/healthcare business. Although the ROIC is lower than you might otherwise expect, that doesn’t trouble me much given the strong demonstrated cash flow generation ability.

Roper isn’t cheap by any approach I use, but I do like the company’s end-market exposures and business model for this point in the cycle, as well as the “dry powder” the company has to make further value-enhancing acquisitions. And while the shares aren’t cheap, they’re not too far from my DCF-based fair value and this would be a very tempting name on another market sell-off.

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Roper Getting Its Due As A Differentiated Value-Creator

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