Dover Corp (NYSE:DOV) has been struggling over the last two years due to a cyclical downturn in energy and industrial markets. The company’s financials are tumbling at a significant rate, while its fundamentals are also softening due to longer cycle of oil & gas markets’ headwinds. Consequently, the company’s revenues are falling at a mid-single-digit rate, but lower margins and declining volume are driving a high double-digit decline in the bottom-line.
Though the company has received partial support from an improvement in its upstream drilling and production businesses as well as continued strong performance in its Printing & Identification platform, Dover still needs a longer time for stabilization amid its higher dependence on oil & gas markets.
Global crude oil markets are expected to remain volatile in the coming quarters, thanks to a disagreement between global energy producers.
In the last nine months, the company’s revenue fell almost 7% compared with the same period last year. However, DOV’s earnings per share plunged 24% in the last nine months, thanks to lower margins and declining volumes. Furthermore, the company is expecting its earnings and revenues to fall at a parallel rate in the following quarters.
Dover’s shares also appear pricey considering price to earnings ratio of around 23, when the industry average is hovering around 20 times. The year-to-date rally of almost 15% in its share price compared to a decline of almost 24% in earnings make its stock expensive for value investors.
However, the company’s dividends still appear safe. Dover is operating in a less capital industry, which is allowing it to generate hefty free cash flows. Dover’s free cash flow conversion ratio was standing around 131% of net income in the last nine months. Dover’s management has been working on cost cuttings and portfolio restructuring activities to align its business model with the changing market trends. However, the company needs more time for stabilization due to its extensive dependence on energy markets.
The author does not have any positions in the above mentioned companies.