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Donaldson (DCI) Soars to 52-Week High, Time to Cash Out?

Have you been paying attention to shares of Donaldson Company (DCI)? Shares have been on the move with the stock up 6.5% over the past month. The stock hit a new 52-week high of $66.71 in the previous session. Donaldson Company has gained 17.7% since the start of the year compared to the 13.4% move for the Zacks Industrial Products sector and the 12.6% return for the Zacks Pollution Control industry.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on June 2, 2021, Donaldson reported EPS of $0.66 versus consensus estimate of $0.58 while it beat the consensus revenue estimate by 8.12%.

For the current fiscal year, Donaldson is expected to post earnings of $2.32 per share on $2.83 billion in revenues. This represents a 16% change in EPS on a 9.8% change in revenues. For the next fiscal year, the company is expected to earn $2.72 per share on $3.1 billion in revenues. This represents a year-over-year change of 16.96% and 9.3%, respectively.

Valuation Metrics

Donaldson may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.

On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Donaldson has a Value Score of C. The stock's Growth and Momentum Scores are B and C, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 28.3X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 24.2X versus its peer group's average of 22.2X. Additionally, the stock has a PEG ratio of 2.7. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Donaldson currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Donaldson meets the list of requirements. Thus, it seems as though Donaldson shares could have a bit more room to run in the near term.

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