Shares of Roper Technologies (ROP 1.04%) soared 37.4% in the first half of 2019, according to data provided by S&P Global Market Intelligence. The move comes alongside a couple of strong earnings reports and a full-year revenue and earnings guidance hike. Meanwhile, management continues to make progress in generating margin expansion and reducing debt while operating its much-vaunted asset-light business model.
First, the company beat its own revenue and earnings guidance in the fourth-quarter 2018 results released at the start of the year and then Roper promptly did it again during the first-quarter results given in April. The upshot of this is that full-year organic revenue growth is now expected to be in the range of 4%-5% compared to a previous guidance range of 3%-5% and full-year diluted EPS is now expected to be $12.70-$13 compared to a previous guidance range of $12-$12.40.
Management has also been busy realigning its business segments to better reflect the spread of its operations. Of particular note, two of its newly defined segments (which combine to generate around 57% of current revenue) are software related -- application software and network software and systems -- as this reflects the ongoing shift in the company's revenue streams.
All of the segments achieved margin expansion in the first quarter, and management expects 4%-6% organic revenue growth for the remainder of the year from the two software segments and the measurement and analytical solutions segment. The one fly in the ointment is the expectation for a revenue decline in process technologies -- Roper is suffering from its exposure to conventional upstream oil and gas spending.
The stock move is really all about the company's positive earnings momentum and the consequent dispelling of the notion that the industrial economy is heading for some sort of recession that would crush Roper's earnings growth prospects.
On the contrary, Roper's outlook has strengthened as the year has progressed, and if oil and gas prices can improve, then maybe the process technologies segment could see some upside to expectations. In the meantime, Roper's debt-to-earnings ratio is declining to a point where management will surely be tempted to go on the acquisition trail -- a key part of Roper's business model.
Investors will be hoping for more of the same from an execution perspective in the second half while keeping an eye out for any opportunistic deal-making. Any help from higher oil prices, of course, would be gratefully received.