Investor Day Supports Our Belief That Dover Has Upside

We see no reason to change our $174 fair value estimate after reviewing narrow-moat-rated Dover’s DOV 2023 investor day materials. We’ve added 50 basis points to our five-year top-line CAGR assumption and 30 basis points to our midcycle operating margin. We’ve also moderated our perpetuity free cash flow margin assumption by 60 basis points, given more elevated working capital needs than we were previously modeling.

In turn, this reduced our implied stage II multiple, despite the higher earnings growth in stage I. Our valuation continues to imply a 19-20 multiple to next year’s adjusted earnings per share, which is relatively in line with peers. While this may seem unusual given a portfolio that’s outearning and that we think has the potential to continue outearning peers, this is mostly due to the capital required to support Dover’s earnings and our narrow moat rating.

Nonetheless, we continue to be bullish on both the portfolio and management’s strategy and high degree of execution. We like Dover’s exposure to biopharma pumps and connectors, where it holds a strong position in the market. Dover’s added some bolt-ons over the years to strengthen its position. We like its exposure to single-use technology, which is growing faster than the core biopharma market. This is a strong secular trend because of market preference over steel. Dover had an investor day dedicated to this topic at the end of 2020. Stainless steel equipment requires deep cleaning after each batch, which is less sustainable and costs time. Single-use technology promotes faster speed to market, greater operational efficiency, and a lower risk of cross-contamination.