Dover reported better-than-expected second-quarter earnings on Thursday and raised its full-year guidance — a powerful report throughout that validates our decision to accumulate a stake on this industrial company two months ago. According to LSEG estimates, revenue for the three months ended June 30 was $2.18 billion, beating the consensus forecast of $2.15 billion. Revenue increased 5% year-over-year on an organic basis, which strips out the impact of foreign exchange, acquisitions and divestitures. Adjusted earnings per share (EPS) rose 15% year-over-year to $2.36, beating the estimate of $2.21, based on LSEG data. Dover Why we own it: We own Dover as an industrial turnaround story with exposure to megathemes, particularly data center expansion to support AI computing. The company’s key data center products are thermal connectors and warmth exchangers. Dover’s biopharmaceutical business is one other attractive area. Dover’s energetic portfolio management and commitment to capital returns make the investment more attractive. Competitors: Ingersoll Rand, IDEX Corp., Snap-On, Veralto and others Portfolio weight: 1.65% Last purchase: June 18, 2024 Start: May 28, 2024 Bottom line One approach to be sure that your stock’s six-session losing streak is coming to an end: Report on the quarter Dover put together Thursday morning, wherein shares rose greater than 6% to over $187 a share. The all-time high of $191.49 was reached on July 16, before that losing streak began. “This stock and this company are doing a lot right. I think it has more to go,” Jim Cramer said at Thursday’s morning meeting. Dover met several key criteria: (1) beat expectations on revenue and earnings, (2) improved earnings guidance, and (3) posted the third consecutive quarter of positive companywide order growth. CEO Richard Tobin also expressed optimism concerning the business segments that matter most to investors straight away: thermal connectors for data centers, biopharma components, and CO2 systems for refrigeration. “Our inventory levels are in good shape, and some of the markets we’re exposed to that have suffered over the last 24 months are turning around,” Tobin said on the earnings call. “In addition, some of our growth platforms like thermal connectors and CO2 systems … are doing very well.” Encouragingly, Tobin said he expects Dover’s book-to-bill ratio to be above 1 for the remainder of the yr, a key threshold that indicates more orders are being placed than are being filled. “It was a little bumpy in the quarter, so we’ll see how it goes. But we expect to be above 1 for the rest of the year,” Tobin said. Dover’s recent portfolio moves — the sale of Environmental Solutions Group, which makes garbage trucks and trash compactors, and the acquisition of two industrial gas suppliers, Michigan-based Marshall Excelsior and Netherlands-based Demaco — were a key discussion point on the conference call. Tobin said the moves would strengthen Dover’s clean energy portfolio and reduce its exposure to more cyclical capital goods businesses. Tobin also made clear that Dover will remain energetic on the mergers and acquisitions (M&A) front, which we were joyful to listen to since it suggests the corporate will proceed to give attention to more attractive end markets. Dover won’t sell any of its businesses below their intrinsic value to spice up its margins within the near term, Tobin said. “The important thing to understand is that we have options in terms of firepower that a lot of people don’t have, which means we can build leverage on the M&A front and then take it down through monetization. We haven’t done that here. [ with our recent moves ]. I think we were just more opportunistic, but it’s an arrow in our quiver for the future.” While it isn’t our style to purchase a stock with a 6%+ increase like Dover is doing on Thursday, we maintain our 1 rating and $200 per share price goal. DOV YTD Mountain Dover YTD Quarterly Commentary Dover hit the bullseye with its 16% organic order growth within the quarter, a major acceleration from the three% growth within the January-March period. For industrial corporations, that is all the time a closely watched metric as an indicator of future growth. Dover did big things. As shown within the chart below, Dover reported revenue growth in 4 of its five operating segments, led by Engineered Products, which rose 8.7% yr over yr to $514.8 million. Management attributed the strength there to strong sales within the waste treatment and aerospace and defense segments. Margins within the segment rose a powerful 430 basis points year-over-year through the period. Pumps & Process Solutions’ revenue and profit missed estimates, but there was still loads of positives within the segment, which houses the thermal connector and biopharma components business. Although the bottom is low, Tobin said orders for thermal connectors utilized in liquid-cooled AI servers are “up significantly.” And after a difficult period of inventory overhangs in biopharma — just as Club holding Danaher experienced — Dover is seeing a recovery in that business, which is rising sequentially and year-over-year. That mirrors what Danaher said in its strong earnings report earlier this week. Dover’s Climate & Sustainability Technologies division beat revenue, profit and margin expectations despite ongoing challenges in the corporate’s European heat exchanger business. The excellent news, nevertheless, is that Tobin said he was “pretty confident” that business should bottom out within the third quarter, with orders increasing within the last three months of the yr, if not sooner.” What really drove the Climate & Sustainability Tech segment was its food retail business, which includes sales of CO2 refrigeration systems. “CO2 goes just about as planned. I feel it’s going higher than planned because the corporate’s margin performance was just exemplary throughout the quarter,” Tobin said. Forecast Dover now expects annual adjusted earnings per share to be between $9.05 and $9.20, up from the previous range of $9.00 to $9.15. The improved forecast is based on full-year revenue growth of 3% to 4%, or 2% to 3% organic. Dover had previously forecast revenue growth of 2% to 4%, or 1% to 3% organic. Currently, Dover’s forecast still includes the Environmental Solutions Group as the transaction moves forward. Tobin said the company will move the unit to discontinued operations in its third-quarter report and adjust forecast and historical financials accordingly. (Jim Cramer’s Charitable Trust is long DOV. A full list of stocks can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trading alert before Jim makes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable foundation’s portfolio. If Jim has discussed a stock on television on CNBC, he waits 72 hours after the trade alert is issued before executing the trade. THE INFORMATION REGARDING INVESTING CLUB PROVIDED ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS AND WILL NOT BE CREATED BY RECEIVING INFORMATION RELATED TO INVESTING CLUB. NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.
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Dover delivered better-than-expected second-quarter results on Thursday and raised its full-year guidance – an all-around strong report that validates our decision to accumulate a stake in the commercial company two months ago.
