Machinery Stocks

Dover Corp Valuation – March 2018 $DOV

Company Profile (obtained from Marketwatch): Dover Corp. engages in the manufacture of equipment, components, and specialty systems. It also provides supporting engineering, testing, and other similar services. It operates through the following segments: Energy, Engineered Systems, Fluids, and Refrigeration & Food Equipment. The Energy segment services include drilling and production; bearings and compression; and automation end markets. The Engineered Systems segment comprises of platforms the printing and identification as well as industrials; and is focused on the design, manufacture, and service of critical equipment and components. The Fluids segment services involves fluid transfer and pumps end markets. The Refrigeration & Food Equipment segment provides energy equipment and systems serving the commercial refrigeration; and food service industries. The company was founded by George L. Ohrstrom in 1947 and is headquartered in Downers Grove, IL.

DOV Chart

DOV data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DOV – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $15,128,959,930 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.40 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 28.21% Fail
6. Moderate PEmg Ratio PEmg < 20 20.93 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.54 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.40 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.29 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.68
MG Growth Estimate -0.47%
MG Value $35.39
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $67.87
MG Value based on 0% Growth $39.79
Market Implied Growth Rate 6.22%
Current Price $97.97
% of Intrinsic Value 276.85%

Dover Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.83 in 2014 to an estimated $4.68 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.22% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Dover Corp revealed the company was trading above its Graham Number of $55.52. The company pays a dividend of $1.82 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 20.93, which was below the industry average of 24.17, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-19.38.

Dover Corp receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$19.38
Graham Number $55.52
PEmg 20.93
Current Ratio 1.40
PB Ratio 3.54
Current Dividend $1.82
Dividend Yield 1.86%
Number of Consecutive Years of Dividend Growth 20

 

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $3,207,120,000
Total Current Liabilities $2,298,193,000
Long-Term Debt $2,986,702,000
Total Assets $10,657,653,000
Intangible Assets $6,201,839,000
Total Liabilities $6,274,473,000
Shares Outstanding (Diluted Average) 158,281,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.87
Dec2017 $5.15
Dec2016 $3.25
Dec2015 $5.46
Dec2014 $4.59
Dec2013 $5.78
Dec2012 $4.41
Dec2011 $4.74
Dec2010 $3.70
Dec2009 $1.91
Dec2008 $3.12
Dec2007 $3.26
Dec2006 $2.74
Dec2005 $2.50
Dec2004 $2.02
Dec2003 $1.44
Dec2002 -$0.60
Dec2001 $1.22
Dec2000 $2.54
Dec1999 $4.41
Dec1998 $1.69

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.68
Dec2017 $4.67
Dec2016 $4.52
Dec2015 $5.10
Dec2014 $4.83
Dec2013 $4.67
Dec2012 $3.94
Dec2011 $3.58
Dec2010 $2.98
Dec2009 $2.65
Dec2008 $2.93
Dec2007 $2.68
Dec2006 $2.14
Dec2005 $1.66
Dec2004 $1.27
Dec2003 $1.20
Dec2002 $1.33

Recommended Reading:

Other ModernGraham posts about the company

Dover Corporation Valuation – July 2016 $DOV
Dividend Growth Stocks for Intelligent Investors – June 2016
Dividend Growth Stocks for Intelligent Investors – February 2016
13 Best Stocks For Value Investors This Week – 12/12/15
Dover Corp Valuation – December 2015 Update $DOV

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Disclaimer:

The author held a long position in DOV but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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