Dover Corporation (DOV) spin off of Apergy Corp (ABY)
On May 9th, 2018, Dover Corporation (NYSE:DOV) is expected to complete the spin-off of its energy business (Wellsite) into a separate public company , Apergy Cop. (APY). The parent will retain the engineered systems, fluids, and refrigeration & food equipment businesses. The spin-off is anticipated to be tax-free and was announced on Decembe 7th, 2017. The spin-off makes sense given that the energ y segment is cyclical and volatile. In our view, the parent should get re-rated towards the multiples of some of he highly-valued peers (DHR, FTV).
DOV's key end markets are posed to grow at low- to mid-single digits with the potential for accelerated growth if currently favorable secular trends develop further. We expect solid performance in engineered systems and fluids segment given strong organic bookings in 1Q18. We anticipate that ongoing efficiency initiatives, combined with Dover's efforts to offer customers bundled solutions, will lead to solid margin expansion going forward. Looking into 2018, we expect bolt-on acquisitions to supplement organic growth as evident from a strong pipeline of of target companies across segments.
APY will be a pure-play onshore-focused equipment and digital technology provider to the upstream oil & gas industry. Significant recurring revenue base (~41% of overall sales) and diverse customer base enhances stability. Strong market positions in growing basins/geographies (US share, Permian, Middle East and LatAm) and growing product categories (ESP, gas lift) bodes well for APY. Favorable industry trends including increasing adoption of artificial lift and automation technologies should support topline growth. Looking into 2018, APY is guiding for revenue growth of ~16% YOY and and adjusted EBITDA growth of ~30% YOY.
Of the two, we prefer DOV (ex APY) owing to more upside potential. In our view, both DOV (ex APY) and APY are undervalued.
Dover is a manufacturer and solutions provider. The company provides services through five segments: Engineered Products, which provides a range of products, software and services; Fueling Solutions, which provides components, equipment and software and service solutions enabling transport of fuels and other hazardous fluids; Imaging and Identification, which includes supplying precision marking and coding; Pumps and Process Solutions, which includes manufacturing of pumps; and Refrigeration and Food Equipment, which provides equipment and systems that serve the commercial refrigeration, heating and cooling and food equipment markets.
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