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Stock Analyst Update

Dover's Rightsizing Plan Takes Shape

New CEO Rich Tobin unveiled plans to cut expenses by $100 million, but we're not making material changes to our fair value estimate as a result.

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Narrow-moat-rated  Dover's (DOV) new CEO, Rich Tobin, presented a rightsizing plan to the market Sept. 11. The plan calls for broad-based selling, general, and administrative expense reductions of $100 million, net of $30 million reinvested in high-return growth initiatives. The SG&A reductions will occur without affecting research and development expense, which the company reports within its SG&A expense line on the income statement. Based on Tobin’s comments, we anticipate that a clear majority of the rightsizing initiatives will come in the form of reduced head count. The company also anticipates implementing a longer-term facility consolidation plan beginning in the fourth quarter, which should take it into 2020.

Tobin demurred from providing analysts updated 2018 or 2019 guidance but expects to deliver an update on Dover’s footprint moves to the market at the start of 2019. Even so, we don’t expect to materially change our $86 fair value estimate. Tobin was clear that this was not a five-year plan, and the latest news doesn’t alter our long-term fundamental view of Dover. As such, we are taking a wait-and-see approach to these announced actions, particularly as we’ve previously modeled in cost savings to the firm’s SG&A line with corresponding offsets in the form of increased corporate costs.

That said, we are pleased with Tobin’s candor during the call. He was not afraid to point out Dover’s recent shortcomings, particularly as it concerns execution. For example, Dover Fueling Solutions has had several missteps with footprint consolidation in Europe, which has not gone according to plan. As a result, the company has incurred additional frictional costs, which have spilled over into operations in the form of logistics and overtime pay.

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Joshua Aguilar does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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