Baird Sees 22% Upside Potential in Dover (DOV) and Raises Rating to 'Outperform'

(Updated - June 8, 2016 8:54 AM EDT)

Baird analyst Mig Dobre sees attractive relative valuation in industrial products manufacturer Dover Corp. (NYSE: DOV), and he upgraded his rating on the stock from Neutral to Outperform with a price target of $86. The price target, based on a sum-of-parts approach, implies upside of 22%.

Dover's energy business has been a drag on both earnings and relative performance, noted the analyst, but Dobre sees signs of stabilization, and he pointed out its diversity of businesses.

"We acknowledge energy markets remain uncertain, however some positive signs have emerged (e.g., US rig count uptick last Friday)," said Dobre. "Management did note at analyst event that demand remains challenged (still), yet should crude prices stabilize around $50/bbl, DOV believes flattening rig count is sustainable while well completions from frack backlog will pick up, benefiting artificial lift and automation. Should oil prices move to $55-60/bbl, DOV expects targeted new well investment and improved US rig count."

Discussing his price target, Dobre said, "We use our 2017 estimates (EBITDA of $1.3 billion, in line with consensus) as well as a defined peer group for each business segment. Uncertainty surrounding Energy seems more than priced in – if we assume peer-like multiples on 2016 EBITDA for non-energy segments, at ~$70/share the implied multiple investors are paying on 2016 Energy EBITDA is ~5x, a meaningful discount vs. OFS peers. Looking into 2017, a similar assumption yields 4x estimated 2017 EBITDA."

Shares of Dover were indicated higher in pre-market trading Wednesday morning.

For an analyst ratings summary and ratings history on Dover Corp. click here. For more ratings news on Dover Corp. click here.

Shares of Dover Corp. closed at $70.50 yesterday.

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