Dover on Thursday reported weaker-than-expected third-quarter results, pressuring shares of the industrial conglomerate with ties to AI data centers. We’re not concerned: The company’s recent asset sales is likely causing some confusion about the numbers. Revenue rose 1.3% year over year to $1.98 billion, a tad shy of the $2.05 billion consensus estimate, according to LSEG. Adjusted earnings per share (EPS) in the three months ended Sept. 30 totaled $2.27, missing expectations by 2 cents, LSEG data showed. On an annual basis, EPS increased 6.1%. Shares were down more than 3% in early afternoon trading, to roughly $185 each. The stock closed Wednesday’s session less than 2% below its all-time closing high of $194.88 set a week ago. Dover Why we own it : We own Dover as an industrial turnaround story with exposure to mega-themes, most notably the data center buildout to support artificial intelligence computing. The company’s key products for data centers are thermal connectors and heat exchangers. Dover’s business serving the biopharma industry is another attractive area. Dover’s active portfolio management and commitment to capital returns sweeten the investment case. Competitors : Ingersoll Rand , IDEX Corp ., Snap-On , Veralto , among others Weight in portfolio : 2.67% Most recent buy : Sept. 5, 2024 Initiated : May 28, 2024 Bottom line We’re reiterating our 1 rating and price target of $200 a share. Dover’s pullback Thursday looks like a buying opportunity because the reasons we own the stock, particularly its artificial intelligence exposure, are still fully intact. Plus, the stock reaction may also be influenced by noisiness surrounding the quarter. Management released updated financial targets to account for the sale of its environmental solutions group (ESG), which made things like trash compactors and garbage trucks. That created headlines that implied Dover cut its full-year guidance, but in reality executives warned in advance that sales growth and earnings projections would be altered. We’re also unsure if all the analyst estimates are apples-to-apples comparisons because their models may need refinement to match the new look Dover. These circumstances require us to step back and consider Dover’s performance on the main pillars of our investment thesis — namely, sales of its thermal connectors used in liquid cooling of data center AI servers; the recovery in biopharma activity; and the ability to reshuffle its portfolio to focus on more attractive growth areas. Dover had upbeat things to say on all these areas, with CEO Richard Tobin noting “robust shipments” of thermal connectors in the quarter along with a 30% year-over-year increase in biopharma revenue. Meanwhile, Dover enters 2025 with “significant optionality for capital deployment and/or capital return,” Tobin said. To be sure, we are restricted from trading Dover’s stock for the next 72 hours because Jim Cramer on Thursday mentioned the company on CNBC TV. DOV YTD…
Read More: Industrial AI play Dover falls on a noisy quarter. Why we’d buy the dip