Since the market bottom in 2009, Dover Corp (NYSE:DOV) has moved up significantly, from $22.30 per share in March 2009 to around $84.70 per share at the time of writing. Dover Corp (NYSE:DOV)’s year-to-date return is nearly 28.90%, outperforming the S&P 500’s return of around 18.60%.
In May, the company announced that it would spin off Knowles, the consumer communication technology business. The spin-off was believed to unlock potential shareholders’ value. Is Dover Corp (NYSE:DOV) a good investment opportunity for investors now? Let’s take a closer look.
Spinning off the communication technology business
Dover Corp (NYSE:DOV), incorporated in 1947, is considered a global manufacturer of innovative equipment, components and specialty systems, operating in four main business segments: Communication Technologies, Energy, Engineered Systems and Printing & Identification. Most of the company’s earnings, 39% of the total 2012 earnings, were derived from the Energy segment, while the Engineered Systems segment accounted for 35% of the operating earnings. The Communication Technologies segment represented around 19% of the total revenue, but only 16% of the total operating profits.
Dover Corp (NYSE:DOV) mentioned that the spinoff would let the company focus on its core industrial business. It spins off only the consumer, but retains the industrial communication technologies business, which serves aerospace and defense industries. Knowles expects to represent around around 14% of the total 2013 revenue of around $8.7 billion – $8.9 billion.
For the full year, Dover Corp (NYSE:DOV) estimated to grow its revenue by 7%-9%, including 3%-5% organic growth and 4% growth from acquisitions. The full year free cash flow was anticipated to account for 10% of the total revenue. Including a $0.13 per share in acquisitions, and Knowles spin-off costs of $0.02 per share, the 2013 EPS from continuing operations might stay in the range of $5.56 to $5.71 per share.
Dover has been a favorite stock of income investors, as the company has marked a 57th consecutive year of dividend increases. The forward dividend payment reaches $1.40 per share, with a dividend yield at 1.70%. Moreover, Dover also returns cash to shareholders via share repurchases. In early 2014, the company expects to complete the $1 billion share buyback program, delivering a 6.9% buyback yield to shareholders. At the current trading price at $84.70 per share, Dover is valued at 9.73 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization).
How about Ingersoll-Rand PLC (NYSE:IR) and Weatherford International Ltd (NYSE:WFT)?
Compared to its peers including Ingersoll-Rand PLC (NYSE:IR) and Weatherford International Ltd (NYSE:WFT), Dover’s EBITDA multiple stays in between.
