Friday, July 18, 2014

Donaldson (DCI) 2014 Review

Donaldson Co manufactures filtration systems and replacements parts including air and liquid filters, exhaust and emission control products, in-plant air cleaning systems, air purification systems, intake systems and specialized filters.  The company has grown profits and dividends at a 13-16% pace over the last 10 years earning a 19-25% return on equity.  As with most industrial equipment suppliers, there is some cyclicality to earnings; however, the company should attain above average rate of earnings growth over the long term as a result of:

(1) expansion into emerging markets,

(2) the introduction of new products through technological innovation,

(3) improved productivity coming from a comprehensive cost rationalization program.

Negatives:

(1)   faltering demand in several of its end markets,

(2) rising raw material costs.

DCI is rated A by Value Line, carries an 8% debt to equity ratio and its stock yields 1.4%.

  Statistical Summary

                 Stock        Dividend       Payout      # Increases  
                  Yield      Growth Rate     Ratio       Since 2004

DCI           1.4%             12                31               10
Ind Ave      1.4               11                24                NA

                Debt/                       EPS Down       Net        Value Line
                Equity         ROE      Since 2004      Margin       Rating

DCI            8%           21%            2                  11%           A
Ind Ave     27              17             NA                 9              NA

        Chart

            Note: DCI stock made good progress off its March 2009 low, quickly surpassing the downtrend off its May 2008 high (straight red line) and the November 2008 trading high (green line).  Long term, the stock is in an uptrend (blue lines).  Intermediate term, it is in an uptrend (purple lines); although, it is close to challenging the lower boundary of that trend.  The wiggly red line is the 50 day moving average.  The Aggressive Growth Portfolio owns an 85% position in DCI.  The upper boundary of its Buy Value Range is $39; the lower boundary of its Sell Half Range is $64.




7/14

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