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Can Nordson (NDSN) Maintain Momentum Despite Headwinds?

Zacks Equity Research

Investors have been encouraged by Nordson Corporation ’s NDSN impressive performance of late. Further, the company’s shares have appreciated 19.5% in the past six months compared with the industry’s rise of 17.2%.

We believe that the company benefits from several growth drivers and enjoys a robust foothold in its served markets.

Factors to Consider

Nordson is well poised to gain from its diversified product portfolio and large customer base in the packaging, nonwovens, electronics, medical, energy, transportation as well as general product assembly and finishing industries.For fiscal 2019 (ending Oct 31, 2019), the company expects strength in end markets and growth initiatives to aid organic sales. Notably, organic volume is anticipated to grow in the low single-digits range for fiscal 2019.

Also, the company is capitalizing on acquisitions by foraying into unexplored markets and expanding product lines. In this regard, the buyout of Clada Medical Devices (closed in October 2018) is strengthening the company’s Advanced Technology Systems segment. Moreover, the Sonoscan buyout (closed in January 2018) strengthened the company’s test and inspection business for electronics market.

Moreover, the company is committed to rewarding shareholders through dividend payments and share buybacks. Notably, in the second quarter of fiscal 2019 (ended Apr 30, 2019), the company paid dividends worth $20 million to shareholders. Notably, the quarterly dividend rate was hiked by 17% in August 2018 and a $500-million share buyback program was authorized in September 2018.

However, escalating costs and expenses have been a major concern for Nordson in the past few quarters. Notably, in the second quarter of fiscal 2019, the company’s cost of sales increased 1.2% year over year. We believe, if unchecked, higher costs and operating expenses will prove detrimental to margins and profits. In addition, a highly leveraged balance sheet, with debts worth $1.2 billion at the end of the second quarter fiscal 2019, can inflate financial obligations and hurt profitability.

Zacks Rank & Stocks to Consider

The stock currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same space are Chart Industries, Inc GTLS, DXP Enterprises, Inc DXPE and Dover Corporation DOV. While Chart Industries sports a Zacks Rank #1 (Strong Buy), DXP Enterprises and Dover carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here .

Chart Industries surpassed estimates thrice in the trailing four quarters, the average positive earnings surprise being 16.56%.

DXP Enterprises surpassed estimates thrice in the trailing four quarters, the average positive earnings surprise being 48.47%.

Dover outpaced estimates in each of the preceding four quarters, the average earnings surprise being 8.61%.

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