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Dover: A Fair Value Stock for Gains This Year

March 12, 2012 | About:
Dover Corporation (DOV), the mid-sized manufacturing conglomerate with businesses across energy, printing, communications and systems, recently announced the acquisition of Zurich based Maag Group. Whilst the terms of the deal were not disclosed, Maag brings with it $170 million of revenue which Dover says will enhance the position of the company in its fluids business.

At the time of its fourth quarter earnings report, Dover said that it expects 2012 full-year revenue to grow by 7% to 10%, with organic growth of 4% to 7%. With the acquisition of Maag, the company has already added the non-organic growth to its pot.

Here I look at how the company compares to a few of its peers:

Price to Earnings

Dover shares are priced at around $63, and trade on a trailing price to earnings multiple of 13.35. This is lower than rivals Ingersoll-Rand (IR) at 39.19, and Weatherford International (WFT) at 48.59. Cooper Industries (CBE) shares trade on a trailing price to earnings ratio of 11.95, and a forward multiple of 12.49.

With its earnings expected to rise to $4.89 in fiscal 2012, from last year’s $4.74, the forward price to earnings ratio of 11.63 looks attractive for the sector.

Dividend and Yield

With a dividend of $1.26 per share last year, Dover shares yield 2%, a shade under the 2.1% yield of Cooper shares, but better than Ingersoll’s 1.6%.

Dover has increased its dividend for 56 years in a row, and has grown the pay out by around 11% a year for the last five years.

Margins

Profit margin at Dover, at 11.26%, is far better than both Ingersoll and Weatherford (both around 2.25%), though a little weaker than Cooper’s 15.3%.

Return on equity of 17.90% is comparable to Cooper’s 18.91%.

Revenue and Earnings Performance

Last quarter’s revenue growth at Dover, as reported on yahoofinance, at 13.1% was better than Cooper’s and Ingersoll’s, though below Weatherford’s 33% growth.

With a tight hold on costs and a good profit mix, earnings rose by 40% on the quarter year on year, as only Weatherford performed better out of the four companies.

Debt Position

Dover has $1.21 billion of cash at its disposal, and with debts of $2.19 billion has a debt/equity ratio of 44.36. With operating cash flow of over $1 billion, Dover has no trouble managing its debt.

Conclusion

At $63, based on the fundamentals discussed, Dover shares look fairly valued compared to their peer group. With a healthy, well-covered dividend, and conservative prospects for earnings growth next year, this diversified manufacturer has a lot to offer. However, with economic growth threatened by the European debt issue, and growth around the world starting to slow, its moderate revenue forecasts could still be hard to meet.

The 52-week low for the shares is $43.64 and the high $70.15. The 12-month chart shows excellent support at around $50, and it is here that I would be recommending it as an outright buy. There is, of course, no guarantee that the shares will trade down to this level, and therefore I feel that they need to be watched closely. It may be worth considering buying at $58, with a stop loss at $55 should they fall through minor support. For investors that have held the shares since October, take profits.

About the author:

Dividend King
I am primarily an investor interested in creating passive income streams through dividends. I focus on finding and analyzing dividend paying stocks, MLPs and REITs that are a good fit for income investors.

I practice Judaism and my faith is very important to me. I visit family in Israel once a year, but I am educated and work in the United States where I hold an MBA and a bachelor’s in English. I am a patient man, enjoy wine but am not a connoisseur, and I listen more than I speak.

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