Barclays said Roper Technologies Inc shares offer an attractive entry point given its recent downturn on the heels of lower-than-expected second-quarter results.
"Despite recent headwinds, the investment thesis remains intact. ROP has fallen out of favor this year on oil & gas, mixed execution and an M&A 'air pocket,'" analyst Scott Davis wrote in a note.
Rating, Results And Justification
Davis reiterated his Overweight rating on the stock, but cut the price target to $192 from $198. Still, the revised target price offers a potential upside of 21 percent over Monday's close of $163.33.
"We see an attractive entry point given stock weakness YTD (ROP -14 percent vs. XLI +9 percent), lowered expectations and a better set-up going into the back half of this year (supported by orders up 9 percent)," Davis noted.
Rooper reported second-quarter EPS of $1.56, $0.03 below consensus on continued oil and gas headwinds and weakness in toll and traffic. Core growth, down 2 percent, came in below guidance of about flat.
The second-half core growth expected to be 2–4 percent (implying flattish growth for the year) and adj. EPS lowered to $6.57–6.71 from $6.85–7.15 (versus consensus of $6.98). The third-quarter adj. EPS initiated at $1.59–1.63 (versus consensus of $1.83). The analyst also cut his 2016 and 2017 estimates by $0.20 to $6.70 and $7.40, respectively.
On the valuation front, Davis noted that the stock isn't cheap versus peers (ROP about 22x 2017E EPS vs. the group at about 17x on average), but cheaper than growth-by-M&A peerDanaher Corporation (about 25x 2017E EPS).
"ROP also trades in line with the group on cash metrics (~6 percent 2017E FCF yield) and we would argue has a better margin/return profile than our average company and likely higher growth through the cycle," Davis added.