Roper Technologies (NYSE:ROP), a diversified technology company that provides products and software solutions across multiple industries, continues to deliver impressive growth metrics despite the ongoing macroeconomic challenges. The company kicked off Fiscal 2023 on a high note, posting double-digit top and bottom-line growth while raising its prior guidance.
This marks a significant milestone for Roper, as its premium valuation has been scrutinized among investors. By achieving accelerated growth in recent quarters, Roper has effectively justified its premium valuation and further solidified its position as a high-quality, well-managed company.
With Roper’s growth momentum remaining exciting and its earnings expansion justifying its current valuation, I am bullish on the stock.
Impressive Q1-2023 Results, Outlook Raised
A few days ago, Roper posted its Q1-2023 results, delivering another quarter of outstanding performance. Quarterly revenues and adjusted earnings per share came in at $1.47 billion and $3.90, implying year-over-year increases of 15% and 19%, respectively.
Not only is it impressive to see double-digit growth from an enterprise software company during a challenging macroeconomic environment, but it is even more remarkable that Roper’s revenues experienced an acceleration in growth compared to previous quarters. Specifically, this quarter’s growth was stronger than the previous quarter’s 13.9% and last year’s 10.8% and was, in fact, the strongest revenue growth the company has posted in five years.
Although Roper’s acquisition-driven growth helped to increase revenues, a significant portion of this growth was actually organic. Specifically, Roper achieved an impressive 8% organic growth rate, which was fueled by the strength of its leading niche businesses across the board. As part of its longstanding strategy, Roper not only scaled its enterprise but also made a concerted effort to improve the overall quality of its operations and increase its recurring revenue streams.
Another observation here is that since Roper’s adjusted EPS grew at a greater pace than revenues, the company’s margins remained robust, while its acquisitions were accretive on a per-share basis, which is paramount when acquiring a company.
Regarding its margins, Roper demonstrated outstanding cash flow performance, with free cash flow margins exceeding 30%. Thus, in my view, this quarter’s results serve as further evidence that Roper’s high-quality, less cyclical portfolio is designed to consistently deliver exceptional performance, regardless of the economic climate.
Following such a strong start to the year, management felt comfortable raising their outlook. They are now expecting to achieve adjusted EPS between $16.10 and $16.30, up from $15.90 to $16.20 previously. At the midpoint, this implies year-over-year growth of 13.4%.
Is Roper Worth Buying for Its Dividend?
Roper features a remarkable dividend growth record, resulting in income-seeking investors stumbling on the stock quite often. The company has raised its dividend for 30 consecutive years, with payouts rising at a rapid pace.
In fact, Roper’s compound annual dividend growth rate over the past decade stands at an impressive 15.3% despite the track record being so mature. The most recent dividend increase of 10.1% back in November was once again by a double-digit rate – a pace which is likely to be sustained moving forward as Roper’s payout is extremely low. It stands at just 17% based on the midpoint of this year’s guidance.
However, despite all these positive attributes, Roper’s dividend hardly contributes to the company’s investment case. Precisely because the company pays out such a small chunk of its earnings, it features a tiny dividend yield of 0.6%. The fact that the stock’s valuation has constantly been hovering at premium levels has also contributed to the yield staying tiny despite Roper’s consistently bold hikes.
Notwithstanding the challenging macroeconomic environment and increasing interest rates leading to other companies experiencing a compression in their multiples, Roper has managed to sustain its premium valuation. This is due to the company’s consistent delivery of strong results against any periodic challenges.
Currently, Roper’s shares are trading at a rich forward P/E of 28.2 based on the midpoint of management’s earnings-per-share outlook, which could be justifiable considering its growth trajectory. However, this has certainly diminished the stock’s reputation as a dividend stock, especially for yield-hungry investors.
Is ROP Stock a Buy, According to Analysts?
Turning to Wall Street, Roper Technologies has a Moderate Buy consensus rating based on seven Buys and four Holds assigned in the past three months. At $498.91, the average Roper Technologies stock price target suggests 9% upside potential.
The Takeaway
Roper’s tremendous performance has been sustained even during a rather tough market environment. The company is posting industry-leading growth metrics, which have even accelerated lately. Management’s guidance raise was also very important in keeping investors’ confidence high and helping sustain the stock’s rich valuation multiple.
In my view, Roper is worthy of trading at its current valuation, as the company’s ongoing earnings growth (13.4%, according to guidance) can back it. That said, I don’t believe shares of Roper can serve income-oriented dividend-growth investors sufficiently, as the yield is subpar, despite Roper’s commendable dividend metrics and history.
