BMO Takes Chillier Stance On Dover Due To Refrigeration Market Pressures

BMO Capital Markets cited valuation and concerns over the refrigeration market in a Friday downgrade of manufacturing conglomerate Dover Corp. DOV. 

The Analyst

Analyst R. Scott Graham downgraded Dover from Outperform to Market Perform and lowered the price target from $93 to $90.

The Thesis

The downgrade was fueled by lower sales and earnings guidance in the refrigeration and food equipment segment, led by a weakness in food retail capex, Graham said in the Friday note. (See the analyst's track record here.) 

The stock has risen roughly 18 percent in the last year, the analyst said. 

The refrigeration segment, including glass doors and display cases, represents 17 percent of Dover's sales, Graham said.

“This market-leading business performed reasonably well from 2010-17 despite building market pressures. Food retailing is structurally changing: non-traditional grocers are taking share from traditional; and capex is shifting toward digital — to support rising online purchasing — from brick-and-mortar,” the analyst said. 

“Dover is handling the former. But we and BMO's food retail team believe the capex shifts toward digital will remain in force, which will continue to be difficult on refrigeration. Indeed, the shifting has accelerated in '18 — likely from Amazon.com, Inc. AMZN and Walmart Inc WMT initiatives — and pressured the division's sales.”

Graham said he remains confident in market stabilization — but not recovery — next year.

Price Action

Dover shares were down 1.29 percent at $85.23 at the time of publication Friday morning. 

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