ModernGraham Valuation: Dover Corporation (DOV)

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Company Profile (obtained from Google Finance): Dover Corporation (Dover) manufactures a range of specialized products and components and also offers related services and consumables. The Company operates in four segments: Communication Technologies, Energy, Engineered Systems, and Printing & Identification. In July 2011, it acquired Sound Solutions from NXP Semiconductors N.V. In September 2011, the Company sold Crenlo, LLC and Paladin Brands of Cedar Rapids. In October 2011, the Company acquired Oil Lift Technology. In November 2011, it acquired Advansor A/S. In November 2011, the Company realigned into four business segments, which includes Communication Technologies, Energy, Engineered Systems and Printing & Identification. In December 2011, the Company sold Heil Trailer International. In March 2012, the Company acquired Maag Group (Maag). In November 2013, Dover Corp announced that it had completed the acquisition of Finder Pompe S.p.A.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $133.54
MG Opinion Undervalued
Value Based on 3% Growth $68.23
Value Based on 0% Growth $40.00
Market Implied Growth Rate 5.51%
NCAV $7.31
PEmg 19.53
Current Ratio 1.62
PB Ratio 2.96

Balance Sheet – 9/30/2013 

Current Assets $3,263,200,000
Current Liabilities $2,018,500,000
Total Debt $2,190,200,000
Total Assets $10,665,100,000
Intangible Assets $5,711,500,000
Total Liabilities $5,380,700,000
Outstanding Shares 170,370,000

Earnings Per Share – Diluted

2013 (estimate) $5.91
2012 $4.53
2011 $4.48
2010 $3.74
2009 $1.99
2008 $3.67
2007 $3.30
2006 $2.90
2005 $2.12
2004 $1.77
2003 $1.33
2002 $1.02

Earnings Per Share – Modern Graham (Calculating EPSmg)

2013 (estimate) $4.71
2012 $3.96
2011 $3.60
2010 $3.14
2009 $2.83
2008 $3.08

Conclusion:

Dover Corporation is an intriguing company for Enterprising Investors.  The company’s current ratio is too low and the PB ratio too high for Defensive Investors, but the company passes enough of the requirements for Enterprising Investors to qualify to be on their radar.  From a valuation perspective, the company has significantly grown its earnings in the historical period under review, taking EPSmg (normalized earnings) from $3.08 in 2008 to an estimated $4.71 for 2013.  The market is implying a growth rate of 5.51%, which is lower than what has been achieved.  As a result, Enterprising Investors should be very keen to do further research on Dover to determine whether it would be suitable for their individual portfolio, while keeping in mind the 7 Key Tips to Value Investing.

What do you think?  Is Dover Corporation undervalued?  Is the company suitable only for Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author was long Dover Corporation at the time of publication.

Photo Credit:  Andrew Magill


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