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Here's Why You Should Consider Investing in Donaldson (DCI)

Donaldson Company, Inc. DCI currently boasts robust prospects on strength in its businesses, solid product portfolio, growth investments and a sound capital-deployment strategy.

The Zacks Rank #2 (Buy) company has a market capitalization of $8.2 billion. In the past three months, it has gained 7.7% against the industry’s decline of 0.5%.

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Let’s delve into the factors that make investment in the company a smart choice at the moment.

Business Strength: Donaldson has been witnessing strength across its On-Road, Off-Road and Aftermarket businesses, owing to solid demand for its products in the end markets. In the quarters ahead, the company is expected to benefit from its strong portfolio of products, solid backlog, focus on innovation, and growth investments. For fiscal 2021 (ending July 2021), it expects its sales to increase 9-11% year over year, higher than 5-8% estimated earlier.

Strong Cash Flows: The company’s ability to generate solid cash flows adds to its strength. Its free cash flow increased 51.1% year over year to $93.5 million in third-quarter fiscal 2021 (ended April 2021) and expanded 66.9% to $265.4 million in the first three quarters of fiscal 2021. For fiscal 2021, it expects free cash flow conversion of more than 100%.

Rewards to Shareholders: It remains committed to rewarding shareholders through dividend payouts and share repurchases. In the first three fiscal quarters, the company paid out dividends worth $79.5 million and repurchased shares worth $78.7 million. Also, in May 2021, it announced a 4.8% hike in its quarterly dividend rate.

Debt Reduction Efforts: The company remains focused on reducing its debt level. Exiting the fiscal third quarter, Donaldson’s debt was $454.6 million, reflecting 8.2% decline on a sequential basis. In the first three fiscal quarters, it repaid long-term debt of $165 million.

The Zacks Consensus Estimate for Donaldson’s earnings is pegged at $2.32 for fiscal 2021, up 4.5% from the 60-day-ago figure. The consensus estimate for fiscal 2022 (ending July 2022) earnings is pegged at $2.72, up 5.4% over the same time frame.

Other Stocks to Consider

Some other top-ranked stocks from the Zacks Industrial Products sector are Applied Industrial Technologies, Inc. AIT, Flowserve Corporation FLS and Tetra Tech, Inc. TTEK, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Applied Industrial delivered a positive earnings surprise of 30.33%, on average, in the trailing four quarters.

Flowserve delivered a positive earnings surprise of 33.19%, on average, in the trailing four quarters.

Tetra Tech delivered an earnings surprise of 11.74%, on average, in the trailing four quarters.

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Tetra Tech, Inc. (TTEK): Free Stock Analysis Report
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