Donaldson Company (NYSE: DCI) manufactures
filtration systems. The Engine Products segment makes air intake, exhaust and liquid filtration systems for the construction, industrial, mining, agriculture and transportation markets. The Industrial Products segment provides dust, fume, and mist collectors and air filtration systems used in industrial gas turbines, computer disk drives and manufacturers' clean rooms. Caterpillar (NYSE: CAT) accounts for over ten percent of Donaldson's sales.
The company surprised investors last week, when it reported fiscal Q3 EPS of 57 cents and revenues of $587.8 million. Analysts had been looking for 51 cents and $540.4 million. Management also guided FY08 EPS to $2.08-$2.13, versus consensus of $2.07. Donaldson said it expects full-year industrial product sales to grow by 17-19%. Engine product sales were seen growing 11-13%.
The stock
popped on the news and has since been forming a bullish "flag" consolidation pattern. Equities frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.
Brokers recommend the shares with three "strong buys", one "buy" and five "holds". Analysts see a 16% growth rate, through the next year. The DCI Sales Growth rate (21.45%), Operating Margin (11.27%), Return on Assets (11.84%), Return on Investment (18.28%) and Return on Equity (24.86%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 74% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $34.11 and $52.33. A stop-loss of $43.95 looks good here.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in either of the stocks mentioned above.
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