Why Roper Industries' Shares Jumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of equipment maker Roper Industries (NYSE: ROP  ) jumped 10% this morning, only to see shares fall close to break even on a number of news items.

So what: First on the list is second-quarter earnings, where Roper said that revenue rose 4% to $725 million and an 8% rise in earnings to $115 million, or $1.15 per share. Revenue was a little light, but earnings were in line with expectations.

What had investors really enamored today was the announcement of a $1.4 billion cash purchase of Sunquest Information Systems, a medical and scientific software developer.

Now what: Management said the deal would be accretive and expects it to add $140 million in EBITDA in 2013. That's a big multiple to pay in the current economic environment, and it looks like investors curbed their enthusiasm later in the day.

The bottom line is that earnings were good but not great last quarter, and the acquisition announced today is fairly expensive. I'll pass on the bump and wait for enthusiasm to fade even more before jumping on this one.

Interested in more info on Roper Industries? Add it to your Watchlist.

Fool contributor Travis Hoium has no position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On July 30, 2012, at 6:21 PM, Buysider wrote:

    I don’t think you know Roper very well. Perhaps you should read the transcript of today’s earnings call and study the accompanying slides, then review Roper’s 20-year record of 20%-a-year growth in sales and EPS since its IPO in February 1992 before commenting further.

    A 2Q incremental margin of 59% on sales and a 2Q operating margin of 24.7% vs. 23.4% last year in a sluggish economy is “good but not great”? Roper is one of the most profitable “equipment” companies one can find, with a growing stable of dominant, niche, technology-based, software and software-driven industrial and commercial businesses, with very high margins, returns, and cash flow, that is acquiring a company with even higher margins than it already has (Sunquest’s EBITDA margin of about 60% on sales is roughly twice that of Roper's 29.5%).

    Considering what Sunquest brings to Roper, 10 times EBITDA is hardly expensive.

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