Donaldson Exhibits Strong Prospects Despite Persisting Headwinds

Donaldson Company, Inc. DCI is poised to gain from the strong performance of the Mobile Solutions and Life Sciences segments. The Mobile Solutions segment is benefiting from strong demand for products in the aftermarket business, supported by growth across all regions and both original equipment (OE) & independent channels. Strong momentum in the off-road business, supported by improving construction end markets, along with higher truck production in the EMEA region that is driving growth in the on-road business, is contributing to the company’s performance. In the third quarter of fiscal 2026, the segment’s sales increased 8.1% year over year.

An increase in demand for disk drives and food & beverage products is aiding the Life Sciences segment. The segment’s sales rose 12.7% year over year in the fiscal third quarter. Driven by strength across the businesses, DCI expects its sales to increase 3-5% in fiscal 2026 from the prior-year level.

Donaldson continues to add assets that expand capabilities and geographic reach. In May 2026, it acquired Filtration Group’s Facet Filtration business. The acquisition complements and enhances the company’s product portfolio of fuel and fluid filtration used in critical applications. In August 2024, DCI completed the acquisition of 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.

Donaldson is committed to rewarding its shareholders handsomely through dividends and share buybacks. Dividend payments totaled $104 million in the first nine months of fiscal 2026. The company bought back shares worth $108.5 million in the first nine months of fiscal 2026. It is worth noting that DCI’s quarterly dividend was hiked 6.7% to 32 cents per share in May 2026. The company has raised its dividend for 30 consecutive years.

DCI’s Zacks Rank

In the past three months, this Zacks Rank #3 (Hold) company’s shares gained 10.5% compared with the industry’s 5.3% growth.

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However, Donaldson’s Industrial Solutions segment is experiencing weakness in certain end markets. In the third quarter of fiscal 2026, the segment’s sales declined 0.6% year over year as lower volumes outweighed net pricing benefits and favorable currency translation. Softness in the aerospace & defense end market, owing to low demand for new equipment amid supply-chain challenges, remains concerning as well.

The company has been dealing with the adverse impacts of high costs and expenses. Increasing manufacturing costs are pushing up the cost of sales, which increased 5.8% to $1.86 billion in the first nine months of fiscal 2026. The impact of these expenditures is evident in the rise of the cost of sales as a percentage of total revenues (in the first nine months), which climbed 100 basis points to reach 66%. In the first nine months, the selling, general and administrative expenses increased 2.8% year over year to $491 million.

Stocks to Consider

Some better-ranked companies from the same space are discussed below:

Generac Holdings Inc. GNRC presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The company delivered a trailing four-quarter average earnings surprise of 13.7%. In the past 60 days, the consensus estimate for GNRC’s 2026 earnings has increased 8.5%.

Applied Industrial Technologies AIT presently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter average earnings surprise of 4.2%.

The Zacks Consensus Estimate for AIT’s fiscal 2027 earnings has increased 1.7% in the past 60 days.

Helios Technologies HLIO currently carries a Zacks Rank of 2. HLIO delivered a trailing four-quarter average earnings surprise of 13.1%.

In the past 60 days, the Zacks Consensus Estimate for Helios Technologies’ 2026 earnings has increased 10%.

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

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