Donaldson Stock Exhibits Strong Prospects Despite Persisting Headwinds

Donaldson Company, Inc. DCI is benefiting from solid momentum across all segments. The Mobile Solutions segment is gaining from higher volume in the aftermarket business, driven by positive market trends and the impact of expanded market share. The Industrial Solutions segment is gaining from persistent strength in the aerospace and defense business. Robust momentum in the commercial aerospace due to increased demand for new equipment, as well as solid demand in defense markets due to the increased orders and porting activity, bodes well for the segment. An increase in demand for disk drives and food & beverage products in the Asia Pacific region is boosting the Life Sciences segment.

DCI solidified its product portfolio and leveraged business opportunities through asset additions. In August 2024, Donaldson acquired a 49% minority stake in Medica S.p.A. The inclusion of Medica’s technology and expertise in filtration products enabled the company to penetrate new markets and diversify its offerings in the medical device and water purification sectors. In June 2023, Donaldson acquired Univercells Technologies, expanding its growing offering in the life sciences industry. Univercells was added to DCI’s Life Sciences segment.

Donaldson’s commitment to rewarding shareholders through dividends and share buybacks is encouraging. The company paid dividends worth $96.9 million in the first nine months of fiscal 2025 (ended April 30, 2025). It also bought back shares worth $273.8 million in the same period. It is worth noting that its quarterly dividend was hiked 11.1% in May 2025. The company has raised its dividend for 29 consecutive years.

Also, in November 2023, its board of directors approved a new repurchase program, authorizing it to repurchase up to 12 million shares of its common stock. The new repurchase program replaced the previous one, which was approved in 2019.

DCI’s Price Performance

In the year-to-date period, this Zacks Rank #3 (Hold) company’s shares have gained 6.3% against the industry’s 2.1% decline.

Downsides of DCI

Weakness in the on-road and off-road businesses is concerning for the company. Lower levels of global truck production, owing to softness in the industrial markets, are affecting Donaldson's on-road business. Weakness in the agriculture markets and soft end-market demand globally are upsetting its off-road business. In the third quarter of fiscal 2025, the on-road and off-road business’ sales declined 24.6% and 8.3%, respectively, on a year-over-year basis.

DCI has been dealing with the adverse impacts of high selling, general and administrative expenses. Increasing manufacturing costs are pushing up the cost of sales, which increased 3% to $1.76 billion in the first nine months of fiscal 2025.

The impact of these expenditures is evident in the rise of the cost of sales as a percentage of total revenues, which climbed 40 basis points to reach 60%. Also, in the first nine months, the overall operating expenses increased 11.4% year over year to $603.7 million. The metric, as a percentage of total revenues, increased 190 basis points to 22.3%.

Stocks to Consider

Some better-ranked companies are discussed below:

Life360, Inc. LIF currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

LIF delivered a trailing four-quarter average earnings surprise of 425%. In the past 60 days, the Zacks Consensus Estimate for Life360’s 2025 earnings has increased 20%.

Alarm.com Holdings, Inc. ALRM presently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter average earnings surprise of 15.7%.

The Zacks Consensus Estimate for ALRM’s 2025 earnings has remained steady in the past 60 days.

Broadwind, Inc. BWEN presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 61.1%.

In the past 60 days, the consensus estimate for BWEN’s 2025 earnings has increased 14.3%.

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This article originally published on Zacks Investment Research (zacks.com).

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