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Roper (ROP) Shares Up 9% in 6 Months: What's Aiding It?

Zacks Equity Research
·3-min read

Shares of Roper Technologies ROP have gained 9% in the past six months against the industry’s 5% decline. Strength across its segments, shareholder-friendly activities and benefits from acquisitions primarily drove the stock.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Roper’s Application Software segment is benefiting from strength across its Deltek, Vertafore, Aderant, CliniSys and Data Innovations businesses. The segment’s growth is supported by strength in its recurring revenue stream, led by strong customer retention and continued migration to SaaS delivery models. For the fourth quarter of 2022, the company expects organic growth of 6-8% for the segment.

The Network Software segment is benefiting from the strong performance of the United States and Canada freight matching businesses. Strength across the Foundry business, owing to solid innovation capability, is driving the segment’s performance. Solid customer additions are aiding the iTradeNetwork business within the Network Software segment. For the fourth quarter, the company expects organic growth of 8-10%.

With record orders and backlog levels, Roper’s Neptune business is fueling growth of the Technology Enabled Products segment. Strong ordering activity in the medical product business, including Verathon and Northern Digital, is a key growth driver for the segment. For the fourth quarter, the company expects organic growth of 5-7% for the segment.

Roper’s measures to expand its operations through successive acquisitions are driving its growth. In October 2022, the company acquired Frontline Education for $3.7 billion. The acquisition builds on Roper’s Horizon software business (which it acquired in 2008), expanding its presence in the K-12 education market. The acquisition is expected to contribute approximately $370 million to Roper’s revenues and $175 million to its EBITDA in 2023.

ROP raised its full-year outlook to include the benefits of this acquisition. For 2022, the company expects adjusted earnings per share from continuing operations of $14.09-$14.13 (previous view: $13.46-$13.62). Organic growth from continuing operations is expected to be 9% in 2022.

Apart from the Frontline buyout, Roper acquired American LegalNet in January 2022, which strengthened its Aderant business. Acquisitions/divestitures boosted sales by 1% in the third quarter. In 2020, the company made several acquisitions, including Team TSI Corporation, Freight Market Intelligence Consortium, WELIS, Impact Financial Systems, Vertafore and EPSi.

Strong cash flow generation capacity supports Roper’s shareholder-friendly activities. In the third quarter, the company generated an adjusted free cash flow of $353 million, up 9.3% year over year. In the first nine months of 2022, ROP rewarded its shareholders with a dividend payment of $196.2 million, up 10.9% year over year. In November 2022, the company hiked its dividend by 10%.

Zacks Rank & Key Picks

Roper currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks within the broader Computer and Technology sector are as follows:

CoStar Group CSGP presently sports a Zacks Rank #1 (Strong Buy). The company pulled off a trailing four-quarter average surprise of 22.4%. You can see the complete list of today’s Zacks #1 Rank stocks.

CoStar Group has an estimated earnings growth rate of 8.8% and 12.1% for 2022 and 2023, respectively. Shares of the company have gained 7.9% in the past three months.

Taboola.com Ltd. TBLA currently flaunts a Zacks Rank #1. The company delivered a trailing four-quarter average surprise of 189.5%.

Taboola.com has an estimated earnings growth rate of 230.8% and 5.9% for 2022 and 2023, respectively. Shares of the company have gained 57.7% in the past three months.

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