While there's nothing wrong with that, one acquisition (or two) can add an immediate boosts to the acquirer's revenue performance -- making management appear way more competent than it really is. In the case of Dover, the fact broadly every business segment grew on an organic basis suggests management is doing well executing on its global growth strategies and productivity initiatives.
From that standpoint of cost-cutting and fiscal awareness, the company was able to deliver almost 20% in segment margins, which represents a year-over-year improvement of 100 basis points. But I don't believe Dover's management has any true peers from an operational perspective. I say this with all due respect to the great work that is going on at both GE and Danaher.
I do realize that it sounds like I'm raising the pompoms a little bit for Dover. But I'm not going to pretend I deserve any credit for this performance. Truth be told, I'm surprised by these results. As I said, I expected very little from this company following the April quarter. Well, I've been proven wrong.
The Street, on the other hand, is being rewarded for its optimism and faith in the company's management. The question now is, where is the stock heading next?
While I do believe Dover's stock is not cheap, the organic growth results makes me question why the Street prices Danaher at a P/E that is four points higher than Dover. I take that as a tell-tale sign these shares are still being discounted, albeit slightly.
With the recent completion of the Finder Pompe deal, there is clearly more value to be had from the standpoint of revenue and cash-flow growth. At the very least, this points to a fair-market value of at least $100 per share. It's not exceptional upside, but the downside is very limited while collecting a decent yield at 1.60%.