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Roper Industries (ROP) reported solid second-quarter results Monday that showed significant revenue and earnings expansion. Sales jumped 23% (16% organic) in the period to an all-time high, while net earnings expanded over 40%, despite a higher tax rate. The firm’s adjusted EBITDA margin expanded over 280 basis points to 28.5% in the period, a strong showing. Free cash flow jumped 41% from the same period a year ago to $145 million, which represented 21% of the firm’s sales in the quarter.

This is the strongest free-cash-flow conversion rate the firm has seen in years (at least since 2006), and we expect Roper to continue to achieve free-cash-flow levels in the high-teens and low twenties as a percentage of revenue, on average, going forward.

Importantly, Roper indicated that it experienced order growth in all four of its segments (RF technology, industrial, energy systems, medical and scientific imaging) and that the book-to-bill ratio exceeded one (parity) for the eighth straight quarter, resulting in a record backlog of $872 million, up $230 million from last year’s second quarter.

Roper raised its full-year earnings per share outlook to the range of $4.20 to $4.30 from $3.97 to $4.12, reflecting the strength in earnings and its order momentum. In all, Roper put up solid results, further supporting the strength we’ve seen in other industrials through second-quarter earnings season so far.

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Source: Valuentum Securities Inc.

After factoring in the firm's second-quarter performance and improved outlook, we think Roper's shares are worth about $80 each, slightly lower than where they are currently trading. We'd look to pick up shares in order Best Ideas portfolio if they fell into the mid-$60s, which reflects an appropriate margin of safety given risks inherent to its business. We make our DCF valuation model template here for investors to use to value Roper and any other operating firm.

Source: Roper Posts Strong 2Q Results, Shares Slightly Overvalued