A Sharp Swing In Sentiment At Dover Looks Like A Long-Term Opportunity

The vagaries of institutional investor sentiment can drive you nuts, but it can also create opportunities for the patient investor. When I last wrote about Dover (NYSE:DOV) in March of this year, I was concerned about the valuation and the extent to which it seemed like sell-side analysts were scrambling for ways to make the stock appear cheap. Since then, the market has soured pretty dramatically on shorter-cycle industrial names, and Dover shares are down about 20%, more than doubling the broader decline in industrial stocks.

I’m not suggesting that there is no risk to the outlook for Dover in 2023/2024, but I do think the cyclicality/short-cycle exposure is perhaps a bit overstated and that the company isn’t getting credit for its diversification and opportunities for longer-term organic growth. I still believe Dover can generate long-term revenue growth in the neighborhood of 4%, with FCF growth of roughly double that, and while I wouldn’t call Dover “super-cheap” now, it’s a name to consider for investors willing to step in front of poor sentiment in pursuit of quality long-term holdings.

 

Click the link for the full article: 

A Sharp Swing In Sentiment At Dover Looks Like A Long-Term Opportunity

Dover Offers So Much To Like, Except The Price

 

I've been pretty consistently bullish on Dover (DOV) as a business, if not always the stock, since Richard Tobin took over the CEO role almost four years ago, and since that time these shares have handily left the broader industrial sector in the dust, rising more than 100% and beating the sector by close to 70%, not to mention outperforming a host of well-loved industrial names like Allegion (ALLE), Honeywell (HON), Illinois Tool Works (ITW), and Roper (ROP).

There hasn't been any secret sauce here either, Dover has outperformed on the back of strong execution, including prudent portfolio transformation and excellent cost/leverage actions. Along the way, management has ignored the siren song of chasing growth by paying up to acquire exposure in areas like software.

With strong performance and underappreciated leverage to secular growth opportunities like automation and biopharma, my long-term growth rate has crept higher and higher. I do expect above-average growth here, as well as above-average margins and returns (ROIC, et al), but the valuation seems to capture that pretty well now. I can certainly go along with the idea of paying up to own superior businesses, but with prospective returns in the mid-single-digits on a longer-term basis, I don't see enough return to want to invest today.

 

Continue reading here: 

Dover Offers So Much To Like, Except The Price

Dover: Delivering A Lot More Than Just Cyclical Leverage

 

Is Dover (DOV) a short-cycle industrial, driven largely by factors like industrial production, or is it a true "market-plus" growth compounder with exposure to fundamentally attractive end-markets? Bears will say the former, bulls the latter, and I'm more of the mind of "both … but more of a compounder". While short-cycle end-market recoveries are undoubtedly helping Dover right now, the business is already beyond pre-pandemic levels and there's a good argument that this business can continue to outperform with a diverse range of leading niche businesses.

I was too early in going "neutral" from "bullish" on Dover back in March of this year, and I likewise didn't really appreciate the company's leverage to growth opportunities like HVAC-R and bioproduction, as those have been significant drivers this year. The almost-20% outperformance over the broader industrial group in that short span makes that a painful miss, and the market is definitely liking what it's seeing from Dover today.

I can't really make the argument that Dover is undervalued today, other than that I think the odds favor beat-and-raise quarters and an improving long-term outlook for revenue and margins. Said differently, good companies "find a way", but the stocks of even the best companies can overshoot.

 

Click here to continue: 

Dover: Delivering A Lot More Than Just Cyclical Leverage

Dover: Slow And Steady Can Win Some Races

While I did like Dover (DOV) as a "slow and steady" performer and a stock where the valuation wasn't out of line with other quality peers back in October, names I preferred more like Eaton (ETN) and Parker-Hannifin (PH) have outperformed, and Dover remains what it was before - a solid "middle of the road" name where management continues to build a reputation for operational rigor and prudent management.

I don't love the valuation, and the prospective return is now on the lower end of the range I see from quality multi-industrials. There's some upside here from M&A and ongoing fundamental outperformance, but Dover doesn't really hit any of the popular "themes" today - it doesn't have superior short-cycle leverage, its cost actions are largely done, it won't be a big player in M&A, and it's not particularly leveraged to areas like bioproduction, HVAC, or green retrofit. None of that will likely matter (or should matter) to long-term shareholders, but for a new money decision today, I don't think Dover is necessarily the best idea.

 

Continue to the full article here: 

Dover: Slow And Steady Can Win Some Races

Dover Delivers Yet Again And Looks Well-Placed To Leverage This Uncertain Recovery

I've said it before, but it bears repeating - quarter by quarter, Dover (NYSE:DOV) builds the case that it's one of the best multi-industrials in North America and arguably underappreciated on its qualities. In addition to a diverse mix of businesses that should be able to outgrow underlying global growth, Dover also has some ongoing margin improvement and inorganic growth opportunities (harnessing the balance sheet to acquire complementary businesses).

Valuation is the hang-up. I think industrials are looking more and more expensive, and the mid-single-digit prospective return I see from Dover is quite a bit lower than my preferred entry point. On the other hand, if you believe that the S&P 500 itself is likely to generate a 6% to 8% long-term return from here, a similar prospective return from a company that I believe is better than the average S&P 500 company is not such a bad setup.

 

Click here to continue: 

Dover Delivers Yet Again And Looks Well-Placed To Leverage This Uncertain Recovery

Dover Looking Toward Biopharma To Pump Up The Growth

Large multi-industrial conglomerates like Dover (DOV) can often be "black boxes" to individual investors, as the companies don't often publicly provide a lot of detail on the individual segments and businesses, and their IR teams are almost never interested in taking the time to walk individual investors through those details. With that in mind, I really appreciate events like Dover's recent investor meeting highlighting its Pumps and Process Solutions (P&PS) business.

In addition to what I'd call "moderately bullish" commentary on the pace of the nascent end-market recovery, Dover made it clear that M&A is a key strategic priority and that it views biopharma as a key growth market. I agree wholeheartedly, and while I think investors could be in for some sticker shock on deal multiples in this space, I think it's a great move to focus on "picks and shovels" solutions for the biopharma industry.

While Dover's guidance gives me more confidence on my numbers for the remainder of 2020, it wasn't enough to prod me to a meaningful upward revision. With the shares up another 10% since my last update, basically in line with the sector and about 5% better than the S&P 500, I don't really see the stock as cheap, but it's a high-quality in a strong sector.

 

Read more here: 

Dover Looking Toward Biopharma To Pump Up The Growth

Dover Making Its Case As A Different, Better Industrial

Dover (NYSE:DOV) has undergone a lot of changes over the last few years, and now, investors are getting to see how it fares through its first real test. So far, the results are encouraging. Dover is still leveraged to a lot of short-cycle markets, but that won't seem like such a bad thing when the recovery starts. Along the way, margins have also come in stronger than expected, boosting the company in an area that is a key value driver.

Dover's shares have tracked its peer group so far in 2020, while outperforming by about 10% over the past year. I'm a little surprised that Dover hasn't done better, but I also can't say that the shares are all that cheap. Dover looks to me to have less risk than its peer group over the next four to six quarters, but with a prospective return in the mid-to-high single digits, I think there are better opportunities in the multi-industrial space.

Read more here:
Dover Making Its Case As A Different, Better Industrial

A Quarter At A Time, Dover Is Building A Better Reputation

Between some significant portfolio restructuring and a new management time focused on extensive margin improvement efforts, Dover (DOV) has taken some meaningful strides to improve its reputation and perception with investors. With the company continuing to execute well into an industrial slowdown/downturn, quarter by quarter, Dover is building its case as a reliable "GDP-plus" growth story with a few years of positive operating margin leverage to look forward to beyond 2019.

My primary hesitation with Dover, as with many quality industrials, is valuation. I'd rather buy Dover shares in the low $90s (the shares briefly retreated to that level after my last update), as the prospective returns at today's price aren't quite compelling enough. Still, management is quickly building a strong reputation and its diversified end-market exposure should support above-peer performance for at least a little while longer.

Read the full article here:
A Quarter At A Time, Dover Is Building A Better Reputation

Dover's Investor Day Gives A Reassuring View Of An Improving Company

Multi-industrial Dover (DOV) has done quite well over the last year, handily outperforming most industrial peers as the Street has bought into this company’s self-help restructuring efforts. Not only has Dover taken strides toward higher margins, but the company has also become meaningfully less cyclical in the process.

I thought the shares were relatively fairly valued back at the time of second quarter earnings, and while the shares did sell off some after earnings, the stock has since recovered and has modestly outperformed its peers on renewed optimism that the trade dispute with China can come to a negotiated end. At this point, I like what Dover is doing from a structural/organizational standpoint, but I’m not all that excited about the valuation. It’s fine, I suppose, as a hold, but I’d wait in the hopes of a pullback before starting a position.

Read the full article here:
Dover's Investor Day Gives A Reassuring View Of An Improving Company

Dover Seems To Be Holding Up Well, And Self-Help Has Yet To Materialize

Dover’s (DOV) share price performance over the past quarter has been so-so, only slightly outperforming the overall industrial sector. Still, the company continues to deliver improving margins and decent organic growth at a time when many short-cycle industrials are starting to struggle. With exposure to multiple longer-cycle process markets with healthier near-term fundamentals and a refrigeration business that should be bottoming, I like Dover’s cycle exposure more than many industrials, but weakening orders (down in Q2 after flat performance in Q1) and a possible re-rating of the sector remain concerns.

Valuation is my biggest issue with Dover. I do think the company has a better end-market mix, and that should help the company post relatively better results over the next couple of quarters. On the other hand, the implied returns from my valuation models are on par with those of Honeywell (HON) and “Honeywell or Dover?” isn’t a question that I have to ponder very long.

Read the full article here:
Dover Seems To Be Holding Up Well, And Self-Help Has Yet To Materialize

Startlingly Good Results From Atlas Copco Support The Quality Premium Argument

Atlas Copco (OTCPK:ATLKY) won’t have the best quarter among multi-industrials this quarter, Honeywell (HON) and Dover (DOV) already surpassed them in organic growth, but the level of outperformance was startingly high all the same and further supports the argument for Atlas Copco as a best-of-breed multi-industrial. Although there are signs of deterioration if you look for them, management seemed relatively unconcerned about the health of the business.

Atlas Copco ADRs have shot up about 20% since my last update (the local shares have done better), when I said that the shares looked about as promising as they get on valuation. It’s a lot harder to reiterate that argument now, and I’d rather wait for a pullback than chase these shares in what I still believe will prove to be a decelerating macro backdrop.

Continue here:
Startlingly Good Results From Atlas Copco Support The Quality Premium Argument

ITW's Margins Seem To Be Holding Up Well As Growth Slows

With the blizzard of earnings reports from April 25, and those that came before, it seems clearer to me that shorter-cycle industrial companies are facing a much more challenging growth environment. In addition to the surprisingly weak revenue number from 3M (MMM) (down 1.1%), Sandvik’s (OTCPK:SDVKY) SMS business saw a 1% decline, and Stanley Black & Decker (SWK) saw a 3% decline in its Industrial segment, while all of the discrete automation companies have seen growth slow.

Considering all of the above, the 1.5% contraction at Illinois Tool Works (ITW) this quarter isn’t so shocking or alarming. Perhaps even more important, particularly relative to 3M and Sandvik’s SMS business, is that ITW’s margins held up better – lending some support to the idea that ITW is a company built more for margins and returns than growth, which isn’t such a bad thing when growth gets scarce.

Industrials have rallied since I last wrote about Illinois Tool Works on growing optimism that 2019 growth will be stronger than expected, and ITW has actually outperformed its peer group. Although I don’t have any particular objections to ITW as a hold, I don’t find the valuation exciting enough to start a position here and I still see more risks that growth in North America will slow as 2019 moves on.

Click here to continue:
ITW's Margins Seem To Be Holding Up Well As Growth Slows

Few Sour Notes For Honeywell

At the risk of drifting into the territory of a broken record, Honeywell’s (HON) performance continues to back up my view of the company as one of the best multi-industrials today. With Honeywell’s longer-cycle businesses hitting the sweet spots of their cycles, the company’s growth is finding another gear at a time when shorter-cycle results are likely to be choppier.

With its core businesses doing well (and with runways to do even better) and ample capacity to do more M&A, but no particular necessity, the only issue I have with Honeywell is, predictably enough, the price. It’s tough for me to push my valuation models beyond a fair value of $170 today, and I think Honeywell is now enjoying the status as a Wall Street darling and growth safe haven. Honeywell has earned this love and I wouldn’t advise stepping in front of this freight train, but it’s tougher to get excited about the returns on offer from this high level.

Read it all here:
Few Sour Notes For Honeywell

Dover Starts 2019 Right, But Can It Follow Through?

Dover (DOV) has been on a good run so far this year, up about 36% since the start of the year on a wider rally in industrials, but the performance gap has narrowed a bit over the three months. Still, Dover got off to a strong start in the first quarter, but margin leverage and order growth weren’t all that bulls might hope for, and it remains to be seen whether the general industrial/discrete manufacturing sectors that account for a lot of Dover’s revenue base will hold up as 2019 rolls on.

There aren’t so many bargains left in the multi-industrials now, and I include Dover in that group. I’ve liked the shares in recent months/quarters, but the strong move has soaked up the undervaluation that I saw and I’m still concerned about the level of expectations for the economy and corporate earnings going into the second half. I like the healthy results in fluids, product ID, and industrial businesses, not to mention the longer-term potential from restructuring, but I think the shares factor that all in now.

Click here for more:
Dover Starts 2019 Right, But Can It Follow Through?

Weak Growth And Robust Expectations Create Headwinds For Illinois Tool Works

Quality is all well and good, and Illinois Tool Works (ITW) certainly has that, but growth and margin leverage tends to drive share price performance and ITW looks to be in shorter supply where those are concerned. Meaningful exposure to softer end-markets like auto, “general industrial”, non-residential construction, and electronics are headwinds to me, and I’m not sure there’s a lot that ITW management can do to repeat the meaningful past improvements in operating margins. On top of all that, the valuation is not all that cheap at this point.

Continue here:
Weak Growth And Robust Expectations Create Headwinds For Illinois Tool Works

Reputation Alone Won't Do It For 3M

As a long-term owner of 3M (MMM), there’s certainly a lot I like about this company, but the fact remains that 3M’s exposure to autos, electronics, China, and non-residential construction are not assets right now, and the company lacks the exposure of peers like Honeywell (HON), Danaher (DHR), and Emerson (EMR) to more attractive end-markets like aerospace, process automation, life sciences, and diagnostics. What’s more, I have some long-term concerns about the corporate strategy that I want to address later.

Weaker short-term growth performance and prospects have done their damage, with 3M lagging many/most of its industrial peers in 2018. Even so, the shares aren’t all that cheap on either a DCF or EV/EBITDA basis and there are other names with more interesting near-term stories in the industrial space.

Read more here:
Reputation Alone Won't Do It For 3M

Strong Results And Good End-Market Make Dover More Of A Standout

This was a really strong quarter for Dover (DOV) in a period when investors really want to hear that conditions in the broader economy aren’t as bad as hoped. Between stronger than expected revenue, strong orders, and decent margins, Dover is in good shape, and the company should benefit from its better relative end-market exposures. A lot is riding on the company’s restructuring program (where expectations are already pretty high) and the valuation isn’t all that cheap, but Dover looks like it will emerge from this reporting cycle as one of the stronger names.

Read more here:
Strong Results And Good End-Market Make Dover More Of A Standout

Dover's Analyst Day Offers Some Encouraging Signs

Dover (DOV) hasn't been my favorite industrial name, largely because of what I believe to be inefficient operations and bloated expenses (leading to less impressive returns on capital) and arguably a less than ideal collection of business. With a new CEO coming into the company from outside (previously the CEO of CNH Industrial (CNHI)), I'd hoped that the company might become more dynamic in addressing its cost issues and perhaps consider more portfolio restructuring activities. While the September 11 analyst day doesn't suggest any dramatic changes are coming, I like the overall direction and philosophy the new CEO is taking with Dover.

Valuation is a little more challenging now. The shares have outperformed industrial peers since the second quarter, in part I believe on improved guidance and healthy orders, but also in anticipation of the analyst day announcements. Although the shares look pretty fully valued on the basis of near-term numbers, successfully executing on cost cuts/margin enhancement efforts and deploying capital toward buybacks could significantly increase EPS in 2020 and beyond relative to current expectations.

Read more here:
Dover's Analyst Day Offers Some Encouraging Signs

Fortive On Target In The Second Quarter And Doing Yet Another Deal

Investors can’t say that Fortive (FTV) management doesn’t deliver on its promises – management at this diversified multi-industrial said they wanted to deploy at least $6 billion into M&A that would skew the company toward more higher-margin recurring revenue, and they have done exactly that. While second quarter earnings were a little choppy, they basically met expectations and the turbulence seen in some of the businesses wasn’t all that different than what comparable multi-industrials like Illinois Tool Works (ITW) and Dover (DOV) saw in their operations.

Click here for more:
Fortive On Target In The Second Quarter And Doing Yet Another Deal

Dover's Core Doing Okay And New Management Brings New Options

I’ve never hid the fact that Dover (DOV) is not among my favorite companies, and over a longer-term holding period, you’d still have done better with names like 3M (MMM), Illinois Tool Works (ITW), Fortive (FTV), Danaher (DHR), and Ingersoll-Rand (IR). That said, Dover shares have been performing meaningfully better on a relative basis over the past couple of years, first with the recovery in the energy sector, then the spin-off of Apergy (APY), and what I believe is building optimism about what a change at the top (a new CEO) could mean in terms of self-improvement.

My complaints about Dover have largely centered around low margins/elevated expenses, weak returns on capital, and a collection of businesses with iffy long-term strategic value. New CEO Richard Tobin seems eager to start work on the expense side of the equation, and I wouldn’t rule out the possibility of management shuffling the deck a little further down the road (selling some businesses and perhaps buying some new ones). While I’m warming up to Dover from a strategic perspective, the valuation still isn’t all that enticing to me, though a longer run of this industrial up-cycle could certainly generate some upside to my expectations.

Follow this link to the full article:
Dover's Core Doing Okay And New Management Brings New Options