The narrow-moat conglomerate's industrial end-market mix remains challenging, and we wouldn’t be surprised to see ongoing volatility in shares over the near term.
We're maintaining our $67 fair value estimate for narrow moat Dover
despite yet another negative earnings guidance revision, highlighting our ongoing concern over the company’s near-term visibility into its various business lines. At the midpoint, management indicated a 38 cent reduction in 2016 EPS to a new range of $3.00 to $3.05. Tempering both our fiscal year 2016 and 2017 estimates to reflect persistent weakness in Dover’s energy-exposed end markets and production issues in retail refrigeration essentially offset any recent time value of money benefits, which kept our fair value estimate stable.
Barbara Noverini is a senior equity analyst for Morningstar.
While we continue to believe that acquisitive growth in Dover’s retail fueling solutions portfolio remains a bright spot, the Oct. 10 announcement also revealed a U.K.-based antitrust challenge related to the pending acquisition of Wayne Fueling Systems. Management is confident that the sale of certain non-essential assets in the U.K. will satisfy these latest concerns and do not expect this outcome to diminish the growth opportunities implied by the deal. Although this development will likely push the closing date to sometime in the first quarter of 2017, the combination of OPW, Tokheim, and Wayne strengthens Dover’s ability to provide a more comprehensive retail fuel offering, which we believe will translate into a source of higher quality longer-term growth for Dover’s portfolio. That said, Dover’s industrial end-market mix remains challenging, and we wouldn’t be surprised to see ongoing volatility in shares over the near term.
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