Readers can find my previous articles through this link. My previous evaluation was “buy” because I believed in Dover (New York Stock Exchange:DOV) is expected to continue to achieve better-than-expected segment profit.repeat my purchase rating With the acquisition of DOV, we believe we are well positioned to capture future growth due to government support, hydrogen promotion, and the upcoming high GWP refrigerant regulations.
Based on my view of the business, I expect DOV’s revenue to grow 3% in FY23, followed by 4% revenue growth in FY24, consistent with the general market consensus. This forecast is influenced by strong third-quarter results with strong sales ratios and margins. Additionally, his DOV’s strategic decision to acquire FW Murphy created synergies between both companies and DOV is well-positioned to capture the growing hydrogen market with government support. Finally, I believe that DOV’s dominance in the CO2 market also positions it well for growth due to EPA regulations that take effect in 2027 and beyond.
DOV is currently trading at a forward P/E ratio of 14.22x, which represents a discount of approximately 38% from its peer group’s median price. In terms of growth prospects, DOV’s 3% is higher than the industry median of 2%. Although the company’s net profit margin is lower at 13.16% compared to its peers’ median of 18.15%, the 38% discount cannot be justified due to favorable growth prospects and slightly lower margins. To be conservative, we’ll give you a 20% discount instead. My model shows a forward P/E ratio of 18.38x, representing a 26% upside. Given his aforementioned strength of DOV and analysis of DOV against its peers, I maintain a Buy rating on DOV.
DOV reported strong results for the third quarter of 2023. Consolidated sales decreased 2% during the quarter, but the book-to-book ratio was 0.93 due to improved lead times and strong shipments on long-term orders, despite a decline in bookings. Organically, it was 4% compared to the previous year. As a result, the backlog has decreased but is still higher than before the pandemic. The biopharmaceutical mix achieved a segment profit margin of up to 21.7%, a record since the Apergy spin-off, offset by broad-based productivity and portfolio improvements. Adjusted EPS for the quarter increased 4% to $2.35. Additionally, strong execution, cost containment measures and favorable price/cost dynamics more than offset the volume decline.
In the same quarter, DOV purchased FW Murphy at a lower valuation multiple than when it sold De-Sta-Co, and the after-tax proceeds from that sale covered the costs of FW Murphy, leaving a significant profit. balance sheet capacity available for further capital deployment options; These two transactions are expected to reduce our exposure to the automotive and Chinese markets, while improving the overall quality of our portfolio through higher margins and higher recurring revenue.
I think signing forward Murphy was a great strategic decision. FW Murphy strengthens its current position in the reciprocating compression industry with complementary product offerings. FW Murphy capitalized on the growing demand for advanced remote monitoring and real-time optimization solutions from clients looking to reduce expenses, increase uptime, and minimize emissions. Combined with DOV’s industry-leading clean technology and leadership position in valve and sealing technologies for alternative energy applications such as hydrogen, the acquisition of FW Murphy is expected to generate significant demand for energy transition investments. Presenting a strong value proposition in the global market. .
The recent announcement of $7 billion in federal funding for multiple regional hydrogen hubs has sparked significant interest in hydrogen. In my opinion, I believe DOV is well positioned and poised to reap the benefits of this transaction. Dover’s 2021 acquisition of Acme, a provider of liquid hydrogen flow control components and turnkey hydrogen refueling sites, solidified the company’s position in the world. Hydrogen industry. This growing government-supported hydrogen market is acting as a catalyst for his DOV, and I believe we are well positioned to take advantage of hydrogen’s rapid expansion.
Starting January 1, 2027, all newly installed refrigeration systems will be required to meet EPA’s final rule under the AIM Act, which requires compliance with reduced global warming potential. [GWP] requirements. In my opinion, DOV’s sales of CO2 systems should increase as a direct result of this regulation, as CO2 is an efficient refrigerant (GWP 1) and is classified as a Safety Group A1 refrigerant. This stems from DOV’s strong market position in the European CO2 market, with annual growth rates averaging in the high double digits. Additionally, DOV was the first company to bring this technology to the United States and currently holds the technological lead in the United States, with the largest installed base and most diverse product offering.
Risks and conclusions
One downside risk to my Buy rating is unexpected setbacks or delays in the government’s decision-making process. If the government decides to scale back or cancel these initiatives due to unforeseen circumstances, such as unsustainable government spending or a change of government, the outlook for DOV will change, leading to a change in market sentiment for DOV. become uncertain. In such a scenario, we would expect DOV’s valuation to shrink, leading to a decline in its stock price.
In conclusion, DOV reported strong third quarter results, with revenue and order backlog still above pre-pandemic levels. Moreover, the overall segment profit margin is still increasing year over year, which translates into his EPS growth. I believe DOV’s acquisition of FW Murphy was a great decision and positions it to take advantage of the rapid expansion of hydrogen. Finally, the company’s strong dominance in the CO2 market also positions it well for future growth, as governments around the world aim to reduce the use and dependence on harmful GWP refrigerants. I maintain a buy rating on DOV as there is room for double-digit upside.