Minnesota-based industrial stock Donaldson is in a buy zone and is Tuesday's IBD 50 Stocks To Watch pick. It was added to the elite IBD 50 list on Friday.
Donaldson develops filtration products in over 140 locations on six continents. It services a vast array of industries including aerospace, agriculture, construction, food and beverage, manufacturing and transportation.
Its specialized filters range from small products used in semiconductors and hearing aids, to large items in bulldozers, airplane cabins and grain processing facilities.
It's not often that industrial stocks land on the IBD 50, which is known for growth stocks. But Donaldson is doing it thanks to its stock performance and, to a lesser extent, its fundamentals.
The industrial stock holds the sixth spot out of 31 stocks in the pollution control group, which is ranks 78th out of 197 IBD industry groups.
Donaldson launched its Torit Downflo Ambient (DFA) weld fume extractor on Jan. 23. The space-saving extractor allows fabricators the ability to weld in a variety of different workstation configurations, without duct work or hoods.
Industrial Stock Hit A 52-Week High
DCI broke out of a flat base with a 62.04 buy point on Jan. 31 in heavy volume, and is trading above its 21-day exponential moving average. The buy zone goes to 65.14.
The stage one flat base began on Dec. 1 and formed mostly above the 50-day moving average — a good sign.
Shares hit a 52-week high of 64.22 on Feb. 3, and are near that peak. The industrial stock has gained over 8% so far in 2023.
Double-Digit Earnings Growth Expected
The company beat fiscal Q1 2023 earnings per share and sales expectations on Nov. 30. Donaldson posted EPS growth of 10% to 32% six out of the last seven quarters, including 23% increases in each of the last two quarters.
Quarterly sales grew 11% to 25% for seven consecutive quarters, but decelerated in the last quarter. Annual EPS grew over 14% in the fiscal 2022 that ended in July.
Management lowered fiscal 2023 earnings guidance in the earnings release. Executives cited reorganizational costs and higher-than-expected currency translations for the expected drop. They forecast $2.86 to $3.02 fiscal 2023 EPS.
Donaldson projects 1%-5% sales growth for fiscal 2023.
Analysts are expecting 12% annualized EPS growth in fiscal 2023, and a more modest 4% the next fiscal year. Donaldson reports December-quarter earnings on March 1.
The industrial stock pays a 1.4% annualized dividend yield to shareholders. Donaldson is a member of the S&P High-Yield Dividend Aristocrats Index, and posted 27 consecutive years of annual dividend increases, paying a cash dividend every quarter for 67 years.
Filtration Company Committed To Sustainability
Donaldson holds 36 International Organization for Standardization (ISO) 14001 Environmental Management Certifications across the globe.
ISO 14001 is an international standard requiring companies to have an environmental management system. It helps organizations improve their environmental performance through efficiencies of resources and reduction of waste, gaining a competitive advantage and the trust of stakeholders.
The company's initiatives include a net-zero emissions Belgian facility that uses solar panels and residual water for heating, and a rainwater harvest and treatment system in a South Africa plant.
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