Roper Technologies Inc. ROP has managed to impress investors with its winning streak, having trumped earnings estimates in each of the trailing four quarters. The company expects this momentum to continue backed by strong business model, broad-based growth across its segments and complementary acquisitions. Buoyed by the robust performance, Roper also raised its earnings guidance for 2018 in the last quarterly report.
Roper’s share price increase reflects its impressive performance, exhibiting investor optimism surrounding the stock. In the past six months, the company has gained 4.6% against the industry’s decline of 5.1%. We believe Roper, which enjoys a strong foothold across markets, has several growth drivers working in its favor. Read on to find out the key catalysts at the moment.
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Factors at Play
Roper’s unique asset-light business model, which allows it to remain less dependent on large-scale production equipment, enables the company to remain profitable even when sales decline during recession. Additionally, the business model helps Roper to generate strong cash flow. We believe that large project wins and strong order trends should boost the top line in the long run.
Moreover, the company holds a dominant position in most of the markets where it operates. Roper also has an optimum mix of highly engineered, niche-oriented products, which helps it to gain market share. Although the company operates in a cyclical business environment, its diversified revenue stream has helped in countering the headwinds. In addition, Roper’s innovative product pipeline is likely to be a major catalyst over the long term.
Meanwhile, this Zacks Rank #2 (Buy) stock is enjoying excellent operational execution as well as broad-based growth in all of its segments. The company’s software and network businesses have also been steady enough to consistently add to its strength. Further, the product businesses are witnessing robust growth as well as strong operating leverage.
Also, the company’s acquisition strategies are directed toward acquiring smaller, asset-light businesses with high profit margins, particularly companies providing medical solutions. This tactical move has helped Roper to contribute meaningfully to the top line and margins. Evidently, in 2016, Roper had spent nearly $3.7 billion in software acquisitions, including ConstructConnect and Deltek, which in turn, drove its performance especially in the software and network businesses. We believe that the company will continue pursuing small acquisitions that strategically fit its overall business mix and contribute to its long-term growth.
Other Stocks to Consider
Some other top-ranked stocks in the same space include Applied Industrial Technologies, Inc. AIT, Altra Industrial Motion Corp. AIMC and Welbilt, Inc. WBT. While Applied Industrial Technologies sports a Zacks Rank #1 (Strong Buy), Altra Industrial Motion and Welbilt carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Industrial Technologies surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 11.6%.
Altra Industrial Motion exceeded estimates thrice in the last four quarters, with an average beat of 5.1%.
Welbilt outpaced estimates thrice in the preceding four quarters, with an average earnings surprise of 14.6%.
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