TipRanks Smart Value #6: Global Precision
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Dear Investors,
Dear Investors,
Welcome to the sixth edition of our brand new TipRanks Smart Value Newsletter!
In each Newsletter, we aim to highlight an undervalued stock poised for long-term gains. Each week, our analysts will identify an overlooked opportunity – a company with strong fundamentals and a resilient business model, whose stock is trading below its intrinsic value.
▣ Note to Investors: As we enter uncharted territory with the onset of a global tariff war, we are now at an unstable partial truce. This environment has reduced visibility into earnings and valuations to nearly zero, leaving analysts at a loss on how to factor near-total uncertainty into their outlooks. However, markets will rally again sooner or later—as they always do. Given this backdrop, we choose to look past near-term unknowns and focus instead on strong fundamentals and sound business models, recommending quality stocks when their prices reach attractive levels relative to their industries and historical trends.
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This Week’s Top Value Pick: Nordson Corp. (NDSN)
Nordson Corp. (NDSN) is a U.S.-based industrial technology company specializing in precision dispensing, fluid management, and related automation solutions. Its products serve diverse end markets, including electronics, the medical industry, packaging, and industrial assembly. NDSN’s operations span adhesive dispensing, testing and inspection, and polymer processing technologies, supporting manufacturers with high-performance solutions that enhance production efficiency and quality.
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Legacy of Innovation
Nordson’s journey began in 1909 with the founding of the U.S. Automatic Company in Ohio, which initially focused on producing screw machine parts for the automotive industry. A pivotal moment came in 1935 when the company was reorganized under Walter G. Nord’s leadership, redirecting its efforts toward supplying precision components for the U.S. defense sector during World War II.
After the war, Walter’s sons, Eric and Evan Nord, laid the foundation for future innovation by establishing Nordson Corporation in 1954 as a subsidiary of U.S. Automatic, focusing on airless spray technology. By the 1960s, the company was pioneering thermoplastic adhesion equipment for hot glue applications, helping revolutionize the packaging and product assembly industries. International expansion soon followed, with marketing branches in Europe and the formation of Nordson K.K. in Japan in 1969.
Eric Nord’s tenure as President lasted from 1954 to 1974, marking a period of strong growth, fueled by organic innovation and acquisitions. In the 1990s, Nordson deepened its global presence, with over 60% of its sales coming from exports to markets outside the United States, and expanded its manufacturing facilities in Europe..
In response to economic headwinds in the late 1990s, the company launched Action 2000, a strategic initiative focused on innovation, diversification, and operational efficiency. This restructuring led to the formation of three core segments: adhesive dispensing, advanced technology, and coating solutions. Today, Nordson is a global leader in precision technology, supported by a rich history of innovation, international expansion, and steady earnings growth.
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Growth Catalyst
Over the past five years, Nordson has strategically accelerated its mergers and acquisitions activity to diversify its portfolio and drive long-term earnings growth. In 2022, Nordson acquired CyberOptics Corporation in a $380 million deal, adding advanced 3D optical sensing and inspection technologies to its semiconductor and electronics portfolio. This acquisition fit seamlessly into the company’s NBS Next growth framework, enhancing its presence in sectors poised for long-term demand growth.
In 2023, Nordson entered the precision agriculture market with its €960 million ($1.06 billion) acquisition of ARAG Group. ARAG, a leader in precision control systems and smart fluid components for agricultural spraying, significantly bolstered Nordson’s Industrial Precision Solutions segment while expanding its reach in Europe. This move aligned with Nordson’s strategy to tap into rapidly growing, tech-driven markets.
In 2024, Nordson completed an $800 million acquisition of Atrion Corporation, a medical device innovator known for its fluid delivery and cardiovascular solutions. Atrion’s integration is already showing promise, with its Myocardial Protection System gaining strong market traction. This acquisition increased Nordson’s total addressable market (TAM) in medical devices by over 50%, capitalizing on secular healthcare trends such as aging populations and rising procedural volumes.
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Global Resilience
Nordson operates a diversified global business focused on precision dispensing, fluid management, and surface treatment technologies. Its operations span three core segments: Medical and Fluid Solutions (MFS), Advanced Technology Systems (ATS), and Industrial Precision Solutions (IPS), serving a broad range of industries such as packaging, electronics, medical devices, automotive, and general manufacturing.
The IPS segment enhances efficiency and product quality through proprietary dispensing and inspection technologies. Meanwhile, the MFS segment delivers specialized components for healthcare, life sciences, and high-tech industries. The ATS segment integrates its proprietary product technologies into production workflows, offering material dispensing, surface treatment, and quality control, primarily for the electronics sector.
Nordson has a wide global footprint, with principal manufacturing sites in the U.S., China, Germany, Ireland, and other countries. With 67% of its revenue generated from international markets and only 33% from the U.S., the company’s global footprint is both a strength and a strategic necessity.
However, this international exposure also makes Nordson vulnerable to tariff-related risks, particularly from U.S.-imposed trade policies that could disrupt cross-border supply chains and raise production costs. As tariffs fluctuate across regions, components and materials shipped between countries may become more expensive, impacting margins and delivery timelines.
To mitigate these challenges, the company has signaled its intentions to proceed with acquisitions on a smaller scale. Analysts believe it will prioritize deals that expand its US footprint to minimize tariff risk.
Backed by a portfolio of over 2,100 patents and 1,000 trademarks, Nordson invests heavily in R&D to develop cutting-edge, high-margin technologies. It generates revenue through a combination of high-performance equipment sales and recurring income from maintenance, parts, and consumables, ensuring stability and profitability.
In 2021, the company launched its Ascend Strategy, to guide Nordson’s long-term vision. The strategy has identified a target of $3 billion in annual sales and a sustained EBITDA margin of 30%+ by the end of fiscal year 2025. The Ascend strategy is driven by three interconnected pillars: NBS Next (a data-driven growth model), Owner Mindset (a division-led organizational structure), and Winning Teams (a talent development strategy).
Nordson’s global presence across more than 35 countries allows it to capture growth opportunities in both mature and emerging markets. The company’s growth strategy is underpinned by organic expansion in high-growth end markets like semiconductors and medical devices, as well as strategic acquisitions of niche market leaders.
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Margin Momentum
Over the past five years, Nordson has steadily expanded its financial footprint, with revenues and earnings growing at a CAGR of 4% and 6.1%, respectively. This growth has been fueled by strategic acquisitions and a rising share of recurring revenues, which have grown from 40% to over 50% in the past decade. This shift has helped provide more stability and predictability in performance, especially amid market fluctuations.
The fiscal year 2024 marked continued progress toward NDSN’s Ascend Strategy goals, with the company reporting record sales of $2.7 billion and an EBITDA of $849 million, representing 32% of sales. However, the first quarter of fiscal 2025 presented challenges. Sales declined 2.8% year-over-year to $615 million, missing consensus estimates, partly due to uneven demand and foreign exchange headwinds. Adjusted earnings fell 7% to $2.06 per share, slightly below analyst expectations of $2.08.
Despite the soft start, Nordson saw encouraging signs in the first quarter. Order entry rates accelerated through the quarter, leading to a 15% increase in sales backlog to $670 million, suggesting stronger demand ahead. While IPS and ATS segments posted an 11% decline year-over-year in sales due to weakness in polymer processing, coatings, and electronics, the ATS backlog rose significantly, indicating a possible recovery in key markets like semiconductors and electronics.
The acquisition of Atrion added 8% to Q1 sales, contributing $53 million in revenue within the Medical and Fluid Solutions segment. Nordson also maintained strong profitability, with gross, operating, and EBITDA margins of 56%, 26%, and 31%, respectively, reflecting disciplined cost controls.
Looking forward, the company expects Q2 sales of $670 million and adjusted EPS of $2.40 at midpoint. For FY25, the company has forecasted sales of $2.81 billion and EPS of $10.10 at midpoint, though it anticipates results may land at the lower end of guidance due to the slower start to the year and the geopolitical and macro environment dynamics.
During the quarter, Nordson reduced its net debt by $20 million, bringing its leverage ratio to 2.4x—well within its target range of 2.0 to 2.5x. This healthy balance sheet provides the company with the financial flexibility to continue investing in strategic growth initiatives, including R&D, acquisitions, and capital expenditures. In addition, Nordson’s operating cash flow and earnings provide strong coverage for its debt and interest obligations, reinforcing its solid financial position.
The company continues to outperform many of its peers in the industrial products sector. Its ROE and ROA rank among the top 20% in the industry, while its ROIC places it within the top 30%.
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Dividend Strength
Nordson has consistently increased its dividend payouts for 61 years, earning it the title of a dividend aristocrat. Over the past decade, the company has grown its dividend at an impressive annual rate of 10.87%. This steady growth has led Nordson to distribute 31.5% of its adjusted earnings to shareholders. Its current dividend yield stands at 1.63%, slightly above the industrial sector average of 1.53%.
As of January 31, 2025, Nordson still had $467 million available for repurchase under its $1.5 billion authorization. This reflects the company’s ongoing commitment to shareholder returns.
NDSN’s stock buybacks have been well-supported by its free cash flows. In Q1, Nordson generated $138 million in FCF, converting 146% of its net income, a stellar performance given the challenging demand environment. The company used this cash prudently, repurchasing $60 million in shares and investing $21 million in capital expenditure, all while continuing to support long-term growth through R&D and strategic acquisitions.
Despite its solid fundamentals, NDSN stock has fallen nearly 30% over the past year. The decline has been driven by a combination of cyclical demand headwinds, inflationary pressures, rising acquisition costs, and weaker revenue forecasts. Yet, market sentiment may be shifting.
NDSN is currently trading at a P/E ratio of 19.2x, slightly above the industrial sector average. However, this valuation is 32.4% lower than its own long-term average, positioning it as one of the more attractively valued industrial stocks in the market. The company’s multiple is in the middle of the price range for its peers, despite having wider margins and higher ROE than most of them.
Wall Street analysts remain optimistic, with a consensus price target suggesting a 31.5% upside from current levels. Some analysts see an even greater potential of up to 51.8%, arguing that the stock is significantly undervalued relative to industry peers. They point to accelerating orders, especially in the Electronics segment, and the possibility of value-accretive acquisitions as key growth drivers. Furthermore, DCF valuation models suggest NDSN is undervalued by approximately 30%, reinforcing its appeal as a long-term investment opportunity.
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Investing Takeaway
Nordson presents a compelling value case with resilient financials, strategic growth via acquisitions like Atrion and ARAG, and a commitment to shareholder returns through 61 years of dividend increases and active share repurchases. The stock is currently trading below its historical average, and with analysts forecasting a significant upside, Nordson appears undervalued. While cyclical headwinds and cost pressures exist, its diversified portfolio, innovation, and cost controls position it well. Strong free cash flow supports continued investment and shareholder rewards, making Nordson an attractive long-term industrial technology investment.
