This industrial machinery company will report earnings on March 2. The company is expected to post EPS of $0.62 on revenues of $768.71 million.
Donaldson Company, Inc. (DCI)
From Sure Dividend
Donaldson Company is a manufacturer and distributor of filtration systems and replacement parts that operates globally. The company has two primary segments: Engine Products, and Industrial Products.
The Engine Products segment provides replacement filters for a wide variety of air and liquid applications, including air, fuel, lube, and hydraulic systems. Donaldson primarily sells to OEMs in construction, mining, agriculture, aerospace, defense, and transportation through this segment. The Industrial Products segment offers dust, fume, and mist collectors; compressed air purification systems, as well as a wide variety of similar products.
Donaldson reported first-quarter fiscal earnings on December 1st, 2021 with sales rising 19.5% year-over-year to $761 million, including a 0.5% benefit from currency translation. Engine Products segment revenue was up 20.9%, including strong performances from nearly all the sub-segments of the business. Off-Road led the way with a 45% revenue surge year-over-year. Industrial Products revenue was up 16.6%, which was due to a 22% year-over-year gain for Industrial Filtration Solutions
The company updated is outlook to earnings-per-share of $2.57 to $2.73, and our estimate is now $2.65 for this fiscal year.
Donaldson’s primary competitive advantage is its extremely wide and deep product catalog for niche applications in a variety of industries. The company has a reputation for quality stemming from its 100+ year history of operations, and that reputation has helped it grow over the years. Donaldson provides certain products that aren’t widely available, leaving it with strong market share.
We forecast 9% annual earnings-per-share growth for Donaldson in the coming years, driven by a combination of margin increases, higher sales, and a slight tailwind from share buybacks. The company’s history of driving revenue increases, combined with its current focus on cost management will drive earnings-per-share growth for years to come, pending labor, freight, and raw materials cost pressures.
The stock is trading for 20.7 times this year’s earnings, under our estimate of fair value at 24 times earnings, driving a 3.2% tailwind from the valuation. When combined with the dividend yield and earnings growth of 9%, we forecast robust total return potential of 13.7% in the coming years.
Ben Reynolds, Eli Inkrot, Nate Parsh, Josh Arnold & Aristofanis Papadatos, Sure Dividend Newsletter, suredividend.com, ben@suredividend.com, February 6, 2022