Dover Corp (DOV) Could Become One of Buffett’s Favorites (Part 8)

Dover seems to employ a reasonable amount of leverage in its operations. As of December 2012, it had $4.92 billion in total stockholders’ equity, $800 million in cash and, $2.8 billion both long and short-term debt. What worries me is the high level of goodwill and intangible assets of $5.74 billion on its balance sheet. Thus, the tangible book value was negative at $4.6 per share.

The most profitable with highest dividend yield

At nearly $74 per share, Dover is worth around $12.9 billion on the market. The market values Dover at 9.1 times EV/EBITDA. Compared to its peers, including Ingersoll-Rand (NYSE:IR) and Weatherford International (NYSE:WFT), Dover seems to be quite reasonably valued.

Ingersoll-Rand is trading at around $55 per share, with a total market cap of $16.3 billion. The company has the most expensive valuation among the three, at 9.84 times EV/EBITDA. Weatherford is the smallest company, with $8.8 billion in total market cap. At nearly $12 per share, the market gives Weatherford the cheapest valuation at only 7.24 times EV/EBITDA.

What investors should notice is the fact that Dover is the most profitable company among the three. It generated nearly 16% operating margin, while the operating margin of Ingersoll-Rand was only 10.9%. Weatherford has the lowest operating margin at only 7.6%.

Although Dover Corp (NYSE:DOV)’s operating margin is nearly 47% higher than that of Ingersoll-Rand, its valuation is only 8% lower than that of Ingersoll-Rand. Furthermore, Dover Corp (NYSE:DOV) is paying the highest dividend yield among the three at 1.9%, while the dividend yield of Ingersoll-Rand is only 1.5%. Weatherford does not pay any dividends to its shareholders.

My Foolish take

With improving operating performance, high profitability, the juiciest dividend yield, a conservative capital structure, and reasonable valuation, Dover seems to be a decent stock for long-term investors.

The article This Company Could Become One of Buffett’s Favorites (Part 8) originally appeared on Fool.com and is written by Anh HOANG.

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