Dover Corporation (DOV) recently reported better than expected results for the first quarter of 2011. Revenue jumped 24% as each segment experienced strong volume growth.
Management issued bullish guidance for the full year of 2011, prompting analysts to raise their estimates. Based on consensus estimates, analysts expect 27% growth this year and 15% in 2012. It is a Zacks #2 Rank (Buy) stock.
Dover has also been consistently raising its dividend over the last decade. It currently yields a solid 1.8%.
Company Description
Dover Corporation is a diversified manufacturer of industrial products. Sales for the first quarter of 2011 were divided as follows:
Industrial Products: 26.5%
Engineered Systems: 28.6%
Fluid Management: 26.0%
Electronic Technologies: 19.0%
Dover Corporation is headquartered in Downers Grove, Illinois. It has a market cap of $11.6 billion.
First Quarter Results
The company reported Q1 revenue of $1.959 billion, a 24% increase over the same quarter in 2010. This came in ahead of the Zacks Consensus Estimate of $1.860 billion. Organic revenue was strong as each segment experienced an increase in volume, which was driven by higher demand in the company’s end-markets.
Although Dover experienced strong demand for its products, it still wasn’t able to raise prices enough to offset rising input costs. As a result, the gross margin slid from 38.7% to 38.2% of sales due to higher raw material costs.
The company was able to leverage its fixed expenses, however. Selling, general and administrative expenses fell from 25.8% of sales to 24.4%, for instance. This helped drive a 33.2% increase in operating income.
Earnings per share came in at 92 cents, beating the Zacks Consensus Estimate by 2 cents. It was a 42% increase over the same quarter in 2010.
Outlook
Management gave bullish guidance for 2011 following solid Q1 results. The company expects 2011 revenue growth of 12-14% driven by 9-11% organic revenue growth. Moreover, the company expects earnings per share in the range of $4.30 to $4.45.
This prompted analysts to raise their estimates, sending the stock to a Zacks #2 Rank (Strong Buy) stock. The Zacks Consensus Estimate for 2011 is currently $4.40, within guidance. This represents 27% growth over 2010 EPS. The 2012 consensus estimate also moved higher and currently stands at $5.06 per share, corresponding to 15% EPS growth.
Consensus estimates for both 2011 and 2012 have been trending significantly higher over the last several months as the company has delivered 8 consecutive positive earnings surprises thanks to an improving global economy:
Dividend
Dover pays a dividend that yields a solid 1.8%. Over the last decade, the company has raised it at a compound annual rate of 8.2%.
Although Dover is a cyclical company, it actually raised its dividend during the Great Recession. The company pays out a relatively modest 29% of its income in dividends, so expect more dividend hikes on the horizon.
Valuation
Like a lot of industrial stocks of late, Dover has seen a bit of a pullback over the last few weeks amid weak economic data. Assuming this isn’t a prelude to another recession, now could be a good time to get in.
The stock trades at 14.1x forward earnings, a discount to the industry average of 16.2x. Its PEG ratio is an attractive 1.0 based on a 5-year growth rate of 13.3%.
Conclusion
Dover Corporation is a solid diversified industrial manufacturer. Because of strong global demand and relatively high leverage, the company has strung together 8 consecutive positive earnings surprises. Both management and analysts seem to be confident that 2011 will be a year of solid growth as well.
With a PEG ratio of 1.0 and earnings estimates continuing to move higher, now could be a good time to pick up some shares…as long as another recession isn’t right around the corner.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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