Quick Take: Dover Corp.

According to Yahoo!Finance, “Dover Corporation manufactures and sells a range of equipment and components, specialty systems, and support services in the United States. The company operates in four segments: Energy, Engineered Systems, Fluids, and Refrigeration & Food Equipment. The Energy segment provides solutions and services for the production and processing of oil, natural gas liquids, and gas to drilling and production, bearings and compression, and automation end markets.”

The price of Dover Corp. (DOV) has declined by –32.46% since the early July 2014 peak.  Looking at the stock, it appears that the downward spiral is locked in.  The following are some thoughts about the stock.

Looking at Edson Gould’s Altimeter, a measure of the stock price relative to the dividend, we see a pattern of undervalue and overvaluation since 1993.

On the whole, Dover Corp. would be considered undervalued when the stock falls below 150 and is overvalued when the stock trades above 230 on the Altimeter.  At the moment, Dover Corp. is considered to be in the undervalued range based on the data from 1994 to 2015. 

Can the valuation traits for this stock change suddenly?  Yes.  Under the following scenarios could the valuation change.

• dividend increases
• dividend decreases
• price increases
• price decreases
• market tanks

The stock market tanking is a matter  that literally takes care of itself.  However, if the dividend were to increase or the price were to decrease then the Altimeter would decline reflecting a greater level of undervaluation.  Correspondingly, if the dividend were to decrease or the price were to increase the Altimeter would appreciate.

The next indicator that we’re looking at is the annual dividend payout ratio based on data from Value Line Investment Survey from 1982 to the present (2015 is an estimate).

Looking at the history of the payout ratio, we see that, in general, low payout ratios reflect relative highs in the stock price while high payout ratios reflect lows in the stock price.  We can’t be certain that the current level of the payout ratio reflects supreme undervaluation, however, history may bear some indication of the prospects for Dover Corp.

From a Dow Theory perspective, Dover had already declined to the fair value level and is now sitting on the $46.87 support.  Only two remaining downside targets remain at $38.51 and $30.16.

Considering that there are only two remaining downside targets, the downside risks are “contained” for the most part.  At most, we think that the next downside target is at the ascending $38.51 level.  A two stage purchase plan should be entered into at the below the ascending $46.87 and  $38.51 levels ($56 and $44, respectively).