The Time May Be Right To Look At Roper Technologies

"Despite recent headwinds, the investment thesis remains intact. ROP has fallen out of favor this year on oil & gas, mixed execution and an M&A 'air pocket,'" analyst Scott Davis wrote in a note.

Rating, Results And Justification

Davis reiterated his Overweight rating on the stock, but cut the price target to $192 from $198. Still, the revised target price offers a potential upside of 21 percent over Monday's close of $163.33.

"We see an attractive entry point given stock weakness YTD (ROP -14 percent vs. XLI +9 percent), lowered expectations and a better set-up going into the back half of this year (supported by orders up 9 percent)," Davis noted.

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Rooper reported second-quarter EPS of $1.56, $0.03 below consensus on continued oil and gas headwinds and weakness in toll and traffic. Core growth, down 2 percent, came in below guidance of about flat.

The second-half core growth expected to be 2–4 percent (implying flattish growth for the year) and adj. EPS lowered to $6.57–6.71 from $6.85–7.15 (versus consensus of $6.98). The third-quarter adj. EPS initiated at $1.59–1.63 (versus consensus of $1.83). The analyst also cut his 2016 and 2017 estimates by $0.20 to $6.70 and $7.40, respectively.

Valuation

On the valuation front, Davis noted that the stock isn't cheap versus peers (ROP about 22x 2017E EPS vs. the group at about 17x on average), but cheaper than growth-by-M&A peer Danaher Corporation DHR (about 25x 2017E EPS).

"ROP also trades in line with the group on cash metrics (~6 percent 2017E FCF yield) and we would argue has a better margin/return profile than our average company and likely higher growth through the cycle," Davis added.

Shares of Roper closed Tuesday's regular trading session up 1.33 percent at $165.51.

Full ratings data available on Benzinga Pro.