ROP - Roper Technologies rated Buy in new coverage at Truist Securities

2023-03-20 13:01:30 ET

Roper Technologies ( NYSE: ROP ) on Sunday was rated Buy in new coverage by analysts at Truist Securities. They said the industrial-technology company has increased the portion of its sales from higher-margin software from about 41% in 2018 to 75% currently, while its acquisition and divestiture strategy is a driver of growth.

“Roper's ( ROP ) de-centralized acquisition model reminds us of software-focused version of Berkshire Hathaway,” Terry Tillman, analyst at Truist, said in a March 19 report, referring to billionaire Warren Buffett’s company.

“Roper ( ROP ) focuses on acquiring businesses that have non-cyclical resilient organic growth, high recurring revenue mix, strong margins and a focus on customer intimacy,” according to Truist. “Typical targets operate in niche markets and are the market leader or a competitive alternative to the market leader in most cases.”

Roper ( ROP ) last year acquired Frontline Education, a maker of school administration software, for $3.73 billion in cash. In 2020, Roper ( ROP ) bought Vertafore, a maker of software for the insurance industry, for $5.35 billion in cash.

Conversely, Roper ( ROP ) in the past few years has sold off businesses such as Gatan, Civco Radiotherapy, Zetec and Transcore. Last year, Roper ( ROP ) sold a majority in its industrial businesses to Clayton, Dubilier & Rice for about $2.3 billion after tax.

These transactions and others have increased Roper’s ( ROP ) cash holdings for more acquisitions.

“We believe the company will continue to seek out software businesses with estimated $4 billion of dry powder that should be at its disposal in 2023,” according to Truist.

The securities firm set a price target of $510 a share on Roper ( ROP ), based on a discounted cash flow analysis that doesn’t assume any more acquisitions, a 10-year compound annual growth rate of 7%, terminal growth of 3%, terminal free cash flow margin of 38%, a 9% weighted average cost of capital and a free cash flow multiple of 23 times.

“We believe [Roper’s ( ROP )] shares deserve a premium to acquisition-centric and vertical SaaS stocks given [its] size, scale and compounding cash flow story,” Truist said.

Roper's ( ROP ) stock on Monday rose as much as 2.9% to $438.02 a share. The shares had declined 8% in the 12 months through March 17, compared with an 11% drop for the Standard & Poor's 500 stock index ( SP500 ).

For further details see: