The market is getting Dover’s earnings all wrong. Here’s what the sellers are

Dover shares fell Thursday despite reporting better-than-expected second quarter results and raising its full-year outlook. We think the market is misjudging this one. Revenue in the second quarter increased 5% year over year to $2.05 billion, beating the $2.04 billion consensus, according to estimates compiled by LSEG. Adjusted earnings per share (EPS) in the three months ended June 30 totaled $2.44, outpacing expectations of $2.39 per share, LSEG data showed. DOV YTD bar Dover’s year-to-date stock performance. Bottom line We’re surprised by this reaction to Dover’s earnings. Not only did the company beat on the top and bottom line, it reported a record adjusted segment EBITDA margin; an acceleration in bookings that provides visibility into the future; and outlined several growth and productivity investments to support long term growth. What’s not to like? (EDITDA, a measure of operating profitability, is short for earnings before interest, taxes, depreciation and amortization.) 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 Most recent buy: July 14, 2025 Initiated : May 28, 2024 Sure, Dover may not be growing revenue as fast as other industrials like an Eaton or GE Vernova. Those fellow Club stocks are more thematic plays, levered to the proliferation of data centers around the world. Still, Dover isn’t getting enough credit for how it has reshaped its portfolio. We recognize all those portfolio actions — the selling of slower-growing, lower margin businesses and high-grading with accretive deals — creates some moving parts. This makes the story confusing and requires patience. However, through these portfolio actions and leaning into fast-growing businesses, revenue growth should accelerate in the second half of the year at a higher margin rate than in years past. We think Thursday’s sell-off should be bought. We are reiterating our buy-equivalent 1 rating and keeping our price target at $210. Quarterly commentary Total revenue increased 5% year over year, driven by a 1% increase in organic sales, a 3% benefit from acquisitions, and a 1% tailwind from foreign exchange. Bookings are the best predictor of future growth. It’s defined as total orders received from customers in the reported period. That’s why we were pleased to see bookings increase 7% year over year and up sequentially, indicating there’s good momentum in the business. Although Dover is only a few weeks into the third quarter, management said on the earnings call that orders are “tracking really well,” another good sign. In addition, Dover’s year-to-date book to bill ratio is above 1 across all five segments, with the company pointing out strength in its highest margin and secular growth markets. This should set up the company well into the second half of this year. Book-to-bill measures the amount of orders received versus orders fulfilled over a given period, so above 1 is desired. Dover’s secular growth business platforms are clean energy components, precision components, single-use biopharma, inputs into liquid cooling applications of data center, and CO2 refrigeration systems. These markets represent 20% of Dover’s portfolio, are higher margin, and are expected to grow at a double digit clip. What really shined in this quarter was Dover’s margins. On an adjusted EBITDA basis, all five segments improved margins over the same quarter last year. Now, here’s a look at how each business segment did in the quarter (a basis point is equal to 0.01 percentage point): Dover’s engineered products segment— a diverse collection of businesses serving end markets such as vehicle repair, aerospace and defense, and industrial automation — saw a 5% decline in organic sales but a 140 basis point improvement to adjusted EBITDA margins. Revenue fell due to lower volume in vehicle services, but that was partially offset by growth in aerospace and defense. Despite the lower revenue, margins increase year over year thanks to cost actions, execution and improved mix of product sales. Clean energy and fueling segment — consisting of products used in transporting and dispensing various fuels including gasoline and compressed natural gas, among others — delivered 8% organic revenue growth on an annual basis and margins expanded 80 basis points. The organic revenue growth was driven by…