We have issued an updated research report on Roper Industries, Inc. ROPon Apr 9, 2015.
The company reported encouraging fourth-quarter and full year 2014 results with both revenues and earnings growing on a year-over-year basis. However, its balance sheet was highly leveraged at year end.
Roper has expanded its business primarily through accretive acquisitions. In 2014, acquisitions contributed 3% each to revenues and order growth. So far in 2015, Roper has made three acquisitions worth $590 million and expects to generate about $100 million in revenues per year from these businesses. The company has an optimum mix of highly engineered, niche-oriented products, which help it to gain market share.
Another key factor driving growth for the company is its unique asset-light business model that helps it to remain less dependent on large-scale production equipment. This enables the company to remain profitable even when sales are declining during a recession. The asset-light business model also enables Roper to generate strong cash flow, which will help the company to increase dividend payout going forward.
However, apart from high-debt levels, macroeconomic concerns, integration issues due to acquisitions and intensifying competition remain headwinds. Also, the frequent acquisitions can negatively impact its balance sheet in the form of a high level of goodwill, which totaled $4.71 billion or 56% of total assets at the end of Dec 31, 2014.
As of Dec 31, 2014, total debt was $2.2 billion. The company had a net debt position of $1.59 billion and a debt-capital ratio of more than 31%. The high debt burden may limit future expansion and aggravate the company’s risk profile.
Furthermore, stiff competition from the likes of Danaher Corp. DHR, Dover Corp. DOV and Ingersoll-Rand Plc IR remains a concern for Roper.
Negative estimate revisions over the last 30 days led to a marginal decline of 0.1% in the Zacks Consensus Estimate to $6.84 per share for 2015. For 2016, the Zacks Consensus Estimate decreased 0.3% to $7.39 per share over the same time frame.
Roper currently has a Zacks Rank #3 (Hold).
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