DCI Stock Study (5-21-26)

Posted by Mark on May 26, 2026 at 07:20 | Last modified: May 21, 2026 09:54

I recently did a stock study on Donaldson Company, Inc. (DCI, $82.95).

M* writes:

     > Donaldson is a leading manufacturer of filtration systems
     > and replacement parts, including air filtration systems,
     > liquid filtration systems, and dust, fume, and mist collectors.
     > The company serves a diverse range of end markets,
     > including construction, mining, agriculture, truck, and
     > industrial. Its business is organized into three segments:
     > mobile solutions, industrial solutions, and life sciences.

Over the past decade, this medium-size company grows sales and EPS at annualized rates of 5.7% and 10.3%, respectively (fiscal year ends Jul 31). Lines are mostly up, straight, and parallel with YOY EPS+revenue dip in ’20 and additional EPS dips in ’18 and ’25. Five- (10-year) earnings R^2 is 0.76 (0.89) and VL gives an Earnings Predictability score of 90. Shares outstanding decrease 10.7% (1.2% per year).

Over the past decade, PTPM leads peer and industry averages while increasing from 11.6% to 13.3% (’25) with a last-5-year mean of 13.7%. ROE leads peer and industry averages while ranging from 21.1% in ’18 to 29.0% in ’22 with a last-5-year mean of 26.4% (shareholder equity consistently positive with 7.7% CAGR). Debt-to-Capital is less than peer and industry averages while decreasing from 42.6% to 31.5% (’25) with a last-5-year mean of 31.9%.

Quick Ratio is 1.3 and Interest Coverage 19.1 per M* who assigns “Narrow” Economic Moat, “Standard” rating for Capital Allocation, and an A grade for Financial Health (per BetterInvesting® website). VL rates the company A for Financial Strength.

With regard to sales growth:

• YF gives YOY ACE 3.5% and 5.1% for ’26 and ’27 (based on 8 analysts).
• Zacks gives YOY ACE 3.5% and 4.7% for ’26 and ’27, respectively (6 analysts).
• VL projects 5.4% per year from ’25-’30.
• CFRA gives ACE 3.5% YOY and 4.3% per year for ’26 and ’25-’27, respectively (8).
• M* gives 2-year ACE of 4.5% per year and projects 5-year CAGR of 5.2% in Equity Report.

My 4.0% annualized forecast is below the long-term estimates.

With regard to EPS growth:

• MarketWatch gives ACE 8.9% and 9.3% per year for ’25-’27 and ’25-’28, respectively (based on 9 analysts).
• Nasdaq.com gives ACE 9.4% and 11.7% per year for ’26-’28 and ’26-’29 [6 / 3 / 1 analyst(s) for ’26 / ’28 / ’29].
• Seeking Alpha projects 4-year CAGR of 10.0%.
• Finviz gives 5-year annualized ACE of 10.7% (1).
• YF gives YOY ACE 8.1% and 9.9% for ’26 and ’27, respectively (8).
• Zacks gives YOY ACE 7.9% and 9.8% for ’26 and ’27, respectively, and 5-year CAGR of 10.0% (6).
• VL projects 15.4% per year from ’25-’30.
• CFRA gives ACE 30.5% YOY and 19.7% per year for ’26 and ’25-’27, respectively (8).
• M* gives long-term ACE 12.0% per year and projects 9.8% CAGR from ’25-’30 in Equity Report.

My 8.0% forecast is below the long-term-estimate range (mean of six: 11.3%). Initial value is ’25 EPS of $3.05/share rather than 2026 Q2 EPS of $3.20 (TTM).

My Forecast High P/E is 22.0. Over the past 10 years, high P/E ranges from 23.1 in ’23 and ’24 to 29.8 in ’21 (excluding 38.4 outlier in ’18) with a last-5-year mean of 25.6 and last-5-year-mean average P/E of 21.8. I am below the 10-year range.

My Forecast Low P/E is 18.0. Over the past 10 years, low P/E ranges from 15.5 in ’20 to 20.4 in ’17 (excluding 31.3 outlier in ’18) with a last-5-year mean of 18.0. I am [aggressively] forecasting the latter.

My Low Stock Price Forecast (LSPF) of $54.90 is default based on initial value from above: 33.8% less than previous close and 18.9% less than the 52-week low.

Over the past 10 years, Payout Ratio (PR) ranges from 30.2% in ’24 to 53.7% in ’18 with a last-5-year mean of 34.1%. I am forecasting below the range at 30.0%.

These inputs land DCI in the HOLD zone with a U/D ratio of 0.6. Total Annualized Return (TAR) is 4.9%.

PAR (using Forecast Average—not High—P/E) of 3.1% is much less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR but even that is well short of my target.

To assess MOS, I start by comparing my inputs with Member Sentiment (MS). Based on only 15 studies (too small for anything but anecdotal comparison) done in the past 90 days (8 outliers including mine excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 4.4%, 12.0%, 25.6, 18.0, and 34.1%, respectively. I am less than or equal to all. VL projects a future average P/E of 22.0 that is greater than MS (21.8) and greater than mine (20.0).

MS high / low EPS are $5.61 / $3.14 versus my $4.48 / $3.05 (per share). My high EPS is less due to a lower growth rate. VL (M*) high EPS of $5.88 ($6.25) is greater than both.

MS LSPF of $57.60 implies a Forecast Low P/E of 18.3: greater than the above-stated 18.0. MS LSPF is 1.9% greater than the default $3.14/share * 18.0 = $56.52 resulting in more aggressive zoning. MS LSPF exceeds mine by 4.9%.

MOS is robust in the study because my inputs (Forecast Low P/E aside) are near or less than historical/analyst/MS averages/ranges. Also supportive of the MOS is MS TAR exceeding mine by 6.7% per year.

With regard to valuation, PEG is 2.1 and 3.0 per Zacks and my projected P/E, respectively: somewhat overvalued (M* has 2.4). Relative Value [(current P/E) / 5-year-mean average P/E] is rich at 1.2. “Quick and Dirty” DCF method has stock undervalued by 11% while M* reports stock at a 12% premium.

This stock was recommended by Dan Boyle to the Ben-Jo Investment Club in the April ’26 BetterInvesting® Magazine. To truly be a high-quality growth stock, I’d like to see sales (historical and projected) in the upper single digits or better. Either way, it’ll take price revisiting the 52-week low to get me more interested.

Per U/D, DCI is a BUY under $56/share. BetterInvesting® TAR criterion would be met [98.6 / ((13.47 / 100 ) +1 ) ^ 5] ~ $52 given a forecast high price ~$99.

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