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Roper Technologies (ROP) Down 10.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Roper Technologies (ROP). Shares have lost about 10.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Roper Technologies due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Roper Earnings Surpass Estimates in Q4, Sales Miss

Roper has reported mixed results for fourth-quarter 2020, with earnings surpassing estimates by 2.01% and sales lagging the same by 1.07%.

The company’s adjusted earnings in the fourth quarter were $3.56 per share, surpassing the Zacks Consensus Estimate of $3.49. On a year-over-year basis, earnings expanded 5% from $3.39 recorded in the fourth quarter of 2019.

For 2020, the company’s adjusted earnings were $12.74, lower than the year-ago figure of $13.05. However, the bottom line surpassed the Zacks Consensus Estimate of $12.65 per share.

Revenue Details

In the reported quarter, Roper’s net revenues amounted to $1,505.3 million, up 7.9% year over year. Notably, adjusted revenues increased 8% year over year to $1,510 million. Organic sales in the quarter decreased 2%, while acquisitions/divestitures and foreign currency translation had positive impacts of 9% and 1%, respectively.

However, Roper’s top line lagged the Zacks Consensus Estimate of $1,522 million.

The company reports revenues under four segments. A brief discussion of the quarterly results is provided below:

Application Software’s revenues totaled $548.5 million, representing 36.4% of the quarter’s top line. On a year-over-year basis, the segment’s revenues grew 33.5%.

Network Software & Systems generated revenues of $448.2 million, accounting for 29.8% of fourth-quarter revenues. The top line grew 5.3% year over year.

Measurement & Analytical Solutions generated revenues of $372.9 million, accounting for 24.8% of the quarter’s revenues. Sales declined 3.9% year over year.

Process Technologies generated revenues of $135.7 million, accounting for 9% of the quarter’s revenues. Sales were down 20.2% year over year.

For 2020, the company’s revenues totaled $5.53 billion, increasing 3% from the previous year.  However, the top line lagged the Zacks Consensus Estimate of $5.55 billion.

Margin Profile

In the reported quarter, Roper’s cost of sales increased 7.3% year over year to $538.7 million. Cost of sales was 35.8% of the quarter’s net sales. Gross profit (adjusted) in the quarter grew 8% year over year to $972 million, while adjusted gross margin increased 20 basis points (bps) year over year to 64.3%.

Selling, general and administrative expenses increased 18.5% year over year to $585.9 million. It represented 38.9% of net sales in the reported quarter. Adjusted EBITDA were $552 million, reflecting year-over-year growth of 7%. Margin decreased 40 bps year over year to 36.6%. Interest expenses expanded 30% year over year to $63.7 million.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Roper had cash and cash equivalents of $308.3 million, up 2.1% from $302.1 million recorded in the last reported quarter. Long-term debt edged down 0.4% sequentially to $9,064.5 million.

During the year, the company’s repayment of senior notes amounted to $600 million, while proceeds raised from the issuance of senior notes totaled $3,300 million. Also, borrowings under the revolving line of credit were $1,620 million.

The company generated net cash of $4,407.6 million from operating activities in 2020, reflecting an increase of 6.9% from the previous year. Capital expenditure totaled $31.2 million compared with $52.7 million in 2019. Free cash flow (adjusted) increased 16% year over year to $1,668 million.
 
The company rewarded shareholders with a dividend payout of $214.1 million. The amount represents growth from $191.7 million distributed in 2019.

Outlook

The company anticipates that cash flow generation will be impressive in 2021 and its businesses, generating recurring revenues, are predicted to remain strong. Also, favorable services and license pipelines as well as any improvement in product (high-margin) businesses are expected to aid. Further, synergistic gains from acquired assets are expected to be favorable.

For 2021, the company anticipates adjusted earnings of $14.35-$14.75 per share, while the same is projected to be $3.26-$3.32 per share for the first quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Roper Technologies has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Roper Technologies has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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