Merrill Lynch/BAM is upgrading Dover (NYSE:DOV) to Buy from Neutral while raising their price tgt to $45 (prev. $34.50)
Merrill is also increasing their 2010 EPS forecast by 20 cents to $2.50 and raising 2011 estimate by 15 cents to $3.00. Firm notes their estimate changes are driven by increased confidence in Dover’s earnings tailwinds that include restructuring benefits, purchasing savings and contribution from acquisitions – most recently Tyler Refrigeration. They see possible share price risk to ~$30, or much less than perceived earlier cycle industrials that have run up faster.
New management is driving upside
Dover’s new management has been aggressively pursuing cost savings and internal operational changes including establishing a new business development structure. Merrill Lynch believes the positive results of this new M&A approach already appear to be paying off given the recent favorable acquisition of Tyler. They calculate gross EPS tailwinds could add to $1.00 in EPS heading into next year.
DOV offers a significant recovery play
In firm's opinion, DOV represents an opportunity to play future industrial recovery – particularly with over 60% of sales derived in North America where recovery should occur ahead of other regions such as Europe. Dover’s tech businesses have likely bottomed last quarter while the company’s Energy segment could provide a future tailwind following initial cycle expansion – particularly given rising energy prices and a domestic rig count that appears toward bottom.
Price target could be conservative
They achieve their price target by applying a mid-cycle valuation to normalized EPS target of $4.50 and discounting back, or by applying a 15x (forward) P/E target to 2011 EPS forecast of $3.00. In the short run, the firm thinks the market could assign a much higher valuation to DOV as the company’s strong earnings growth prospects become more apparent coupled with the stock’s favorable valuation vs. other cyclical industrials.
Notablecalls: I'm going to call this one Actionable - I expect the shares to see meaningful buying interest today and in the coming days.
There is a lot to like about this call:
- Dover has been a laggard and this call will help it to catch up.
- As MLCO points out, 2/3 of DOV's business is derived from the U.S. where things seem to have picked up. Europe will follow (contrary to press reports, checks are showing things are picking up there as well).
- The call is coming from Merrill Lynch, a firm with a large client base. The brokers will be calling every PM they know ushering them to get long the stock.
- The analyst, John G. Inch believes his $45 tgt could be too low.
I suspect anything below $35 level is Actionable. I see the stock surpassing this level today or in the coming days.
Merrill is also increasing their 2010 EPS forecast by 20 cents to $2.50 and raising 2011 estimate by 15 cents to $3.00. Firm notes their estimate changes are driven by increased confidence in Dover’s earnings tailwinds that include restructuring benefits, purchasing savings and contribution from acquisitions – most recently Tyler Refrigeration. They see possible share price risk to ~$30, or much less than perceived earlier cycle industrials that have run up faster.
New management is driving upside
Dover’s new management has been aggressively pursuing cost savings and internal operational changes including establishing a new business development structure. Merrill Lynch believes the positive results of this new M&A approach already appear to be paying off given the recent favorable acquisition of Tyler. They calculate gross EPS tailwinds could add to $1.00 in EPS heading into next year.
DOV offers a significant recovery play
In firm's opinion, DOV represents an opportunity to play future industrial recovery – particularly with over 60% of sales derived in North America where recovery should occur ahead of other regions such as Europe. Dover’s tech businesses have likely bottomed last quarter while the company’s Energy segment could provide a future tailwind following initial cycle expansion – particularly given rising energy prices and a domestic rig count that appears toward bottom.
Price target could be conservative
They achieve their price target by applying a mid-cycle valuation to normalized EPS target of $4.50 and discounting back, or by applying a 15x (forward) P/E target to 2011 EPS forecast of $3.00. In the short run, the firm thinks the market could assign a much higher valuation to DOV as the company’s strong earnings growth prospects become more apparent coupled with the stock’s favorable valuation vs. other cyclical industrials.
Notablecalls: I'm going to call this one Actionable - I expect the shares to see meaningful buying interest today and in the coming days.
There is a lot to like about this call:
- Dover has been a laggard and this call will help it to catch up.
- As MLCO points out, 2/3 of DOV's business is derived from the U.S. where things seem to have picked up. Europe will follow (contrary to press reports, checks are showing things are picking up there as well).
- The call is coming from Merrill Lynch, a firm with a large client base. The brokers will be calling every PM they know ushering them to get long the stock.
- The analyst, John G. Inch believes his $45 tgt could be too low.
I suspect anything below $35 level is Actionable. I see the stock surpassing this level today or in the coming days.
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