DCI - Donaldson rated Neutral in new coverage at Citibank

2023-06-28 10:52:00 ET

Donaldson Co. ( NYSE: DCI ) on Wednesday was rated Neutral in new research coverage by analysts at Citibank. They said shares in the maker of air, oil and liquids filters for trucks and heavy machinery are fairly valued at current prices, and that the company’s history of steady sales for replacement parts help to allay concerns about economic growth.

“High aftermarket content (approximately 65%), diverse end markets and low leverage provide good defense in an uncertain macro environment,” Timothy Thein, analyst at Citibank, said in a June 28 report. “Donaldson ( DCI ) is a high-quality player in an attractive segment (filtration), but we see a fairly balanced risk/reward trade-off at current levels.”

The electrification of trucking and heavy machinery is likely to take longer than for cars, providing Donaldson ( DCI ) with a source of demand for filters, Citibank said.

The company has an opportunity to increase sales in the life sciences industry. Such a move will require greater investment by the company and possible acquisitions, according to Citibank. The life sciences industry includes food and beverage, medical, biopharmaceutical and chromatography-based filtration industries.

“With engine filtration products accounting for approximately 70% of sales, the eventual transition to alternative powertrains is likely to remain near the top of investor debates,” Citibank said. “We are less concerned about the risk to Donaldson’s ( DCI ) long-term earnings power given filtration needs across most powertrain solutions and its out-sized exposure to heavier-duty markets where transitions will take longer, though it could weigh on the multiple.”

Citibank set a price target of $66 a share for Donaldson ( DCI ), based on a multiple of 14 times estimated EBITDA for 2024 and a price-to-earnings multiple of 21 times.

“These multiples imply a modest premium to its historical average, which we feel is justified given Donaldson’s ( DCI ) higher earnings visibility and portfolio enhancement,” Citibank said.

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