(RTTNews) - Thursday, Credit Suisse upgraded Donaldson Co. Inc. (DCI: News ) shares to Outperform from Underperform and increased its price target to $41 from $28.

Analyst Mazari upgraded the stock based on upside from the engine aftermarket business driven by a bottoming out of utilization rates which the market is not baking in, long term opportunity to increase aftermarket penetration rate, and consensus forecasts for 2010 and 2011 appear low.

The analyst said that Donaldson has grown earnings and consistently earned high teens return on capital for 19 years in a row before this downturn and the extent to which they can benefit from a cyclical recovery is underappreciated.

The analyst noted that Global IP which is bottoming out has had a 0.7+ correlation to overall company sales. The analyst believes the track record of earnings growth returns in fiscal 2011 with earnings power of close to $3.00 by fiscal 2013.
The analyst believes over 40% of Donaldson's portfolio is early cycle where signs of a recovery could lead to faster growth combined with a low US dollar which likely helps earnings come in higher than expectations.

The analyst raised price target to $41 from $28 based on his fiscal 2013 EPS estimate of $2.80 at a 18.5x P/E multiple discounted back. The 18.5x P/E multiple is consistent with what DCI shares have traded at for almost a decade. The stock has lagged more cyclical industrial names, although it should see double-digit top-line growth and close to 2x that in earnings in a recovery.

Currently, DCI is up $2.15 or 6.36% and trading at $35.96.

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by RTT Staff Writer

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