Core Portfolio Insight: Nordson (NDSN)

Core Portfolio Insight: Nordson (NDSN)

May 13, 2022
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Founded in 1954 by Walter, Eric, and Evan Nord in Amherst, Ohio, Nordson is a $12 billion market cap company today that sells hoses, nozzles, valves, pumps, and more to industrial customers. These industrial customers have production lines with large systems that require the critical, but low unit cost, components that Nordson makes. Nordson has over $2.3 billion of revenue and more than 7,500 employees in 35 countries. It is on its 58th consecutive year of increasing the annual dividend, displaying the dependability of the company. CEO Sundaram Nagarajan joined Nordson in August 2019 after spending 23 years at Illinois Tool Works. [1] [2]

What makes Nordson a GPM Grade Company? First off is the focus on long-term sustainable growth. Over the last 10 years, the compound annual growth rate (CAGR) for sales is 7% and free cash flow (FCF) is 8%. Nordson's Industrial Solutions typically grows at a low-single-digits percentage rate, while its Technology Solutions grows faster in the high-single- to low-double-digits percentage rate. [1] [2]

Next, Nordson sells niche products with high barriers to entry. Its components are mission critical to the larger systems that contain them. Since these components are highly integrated and under constant use on production lines, the components eventually wear out, requiring replacement. Switching to a cheaper competitor would not make sense because the production line would have to be shut down, rendering any cost savings useless. This makes Nordson a predictable business, giving us confidence in forecasting in the long-term. Its aftermarket consumable parts account for 55% of total revenues, providing reliable & growing cash flows. [1] [2]

Nordson has solid growth opportunities beyond its dependable industrial business. The new CEO introduced the "Ascend" strategy which focuses on sustained organic growth while accelerating acquisitions in the Technology Solutions space. Management plans on shifting product mix so that Technology Solutions increases to 60% of total revenue, from 45% today. Nordson sees especially high growth within its Medical end market due to an aging population, more non-invasive surgeries (requires many single-use products), and medical OEM (original equipment manufacturer) outsourcing. Nordson has a stake in growing trends like Electric Vehicle (EV) battery manufacturing, factory automation, and more. Nordson's goal is for more than $3 billion of revenue by 2025, which includes 4% organic growth and 3% growth from acquisitions. [1] [2]

Sources:

[1] Nordson 2021 Virtual Investor Day

[2] Nordson First Quarter 2022 Results Presentation

Disclosure:

This blog post or document contains information about a company that is owned in portfolios managed by GPM and is intended exclusively for GPM clients. While this company is owned in a broad cross section of GPM managed portfolios, it should not be implied or assumed that every client portfolio or account currently holds this stock. Data presented is from sources we believe to be reliable. The opinions and commentary presented reflect our best judgement at this time, and may include “forward-looking statements”, all of which are subject to change at any time without obligation to update them. Shares of this stock are NOT held in accounts that invest exclusively in ETFs or mutual funds. Actual future results may be different than our expectations. There can be no assurance that your investment objectives will be realized. Investing involves risk and losses can occur.