EUR 850.00 For Business Accounts Only

Morningstar | Dover Q3 2018 Updates

We view Dover as a collection of moaty businesses in niche markets, with stable earnings power that was previously masked by a Jekyll-and-Hyde upstream business. When times were good, oil and gas sales were a boon to Dover’s results. But when commodity prices were pressured in 2015-16, Dover’s results were squeezed. Post spin-off of Apergy, we believe the market has reassessed Dover’s value, allowing new management to focus on restructuring in its core markets.The best diversified industrials, in our view, are GDP-plus businesses, whose portfolios consist of subsidiaries with leading and profitable market share, backed by moaty characteristics. At Dover, we think all these factors are at play, to some degree. Many of Dover’s businesses hold the first or second share position in consolidated niche markets. Customers in these markets demand highly technical, engineered solutions and trust Dover’s collection of brands to meet both safety and environmental regulatory standards. Finally, in certain portions of its business, Dover benefits from a wide installed base, built on a razor-and-blade model, and backed by highly recurring revenue. Dover’s current portfolio benefits from myriad secular trends, including traceability and food label regulations, technological advancements in both printing and refrigeration techniques, customer demand for energy-efficient solutions, rising urbanization in the developing world, increasing volume of surgical procedures, close-the-door refrigeration, and consolidation in the grocery and convenience store industry. As a result, we believe management can realistically achieve its intended goal of 3%-5% organic growth per year. Outside of 2018, we project about 4% growth during the medium term, net of the lost revenue from the Apergy spin-off. We believe Dover can materially increase each of its segment margins, net of acquisitions, based on various productivity initiatives--specifically, about 310 basis points, 400 basis points, and 400 basis points in the firm’s engineered systems, fluids, and refrigeration and food equipment segments by 2021, even as these improvements are below managerial guidance and market expectations.