Donaldson (DCI) Q1: Net Margin Decline Tests Bullish High-Growth Filtration Narrative

Donaldson Company (DCI) opened fiscal Q1 2026 with revenue of $935.4 million and basic EPS of $0.98, alongside net income of $113.9 million, setting a steady backdrop for its latest results. The company has seen quarterly revenue move from $900.1 million and EPS of $0.83 in Q1 2025 to $935.4 million and EPS of $0.98 in Q1 2026. Trailing 12 month EPS sits at $3.24 off $3.7 billion of revenue, framing a story where headline growth meets a more nuanced margin picture.

See our full analysis for Donaldson Company.

With the numbers on the table, the next step is to weigh this earnings profile against the dominant narratives around Donaldson, highlighting which storylines the latest margin trends support and which they start to push back on.

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Margins Slip Despite Solid TTM Earnings

• Over the last 12 months, net profit margin is 10.2%, down from 11.6% a year earlier, even though trailing EPS of $3.24 is higher than the $3.09 level reported three quarters ago.
• Consensus narrative highlights expansion into high growth filtration segments and higher margin areas like Life Sciences, yet the recent margin dip contrasts with that story:
  • Analysts expect profit margins to rise from 9.9% to 12.9% over about three years. However, the latest trailing margin of 10.2% shows that progress is not necessarily linear.
  • Five year earnings growth of about 8.6% a year and higher TTM revenue of $3.7 billion versus $3.6 billion a year ago support the idea of a stronger mix, but the near term margin compression shows execution risk.

Premium P/E Versus Slower Top Line

• The stock trades on a 27.9x P/E, above the US Machinery industry at 25.5x and peers at 26x, while revenue is only forecast to grow around 4.1% per year compared with about 10.6% for the broader US market.
• Bears focus on this valuation gap and modest growth profile as a key risk:
  • The current share price of $92.44 sits above both a DCF fair value estimate of $87.11 and an analyst price target of $89.80, which points to limited implied upside on current assumptions.
  • Forecast earnings growth of roughly 9.1% a year looks healthy on its own. When paired with slower expected revenue growth and recent margin slippage, it gives skeptics grounds to question paying a premium multiple.

Skeptics point to the rich 27.9x P/E and softer margins as reasons the current $92.44 price could face pressure if growth expectations ease. 🐻 Donaldson Company Bear Case

Earnings Growth Outlook Still Intact

• Trailing 12 month net income has risen from $367.0 million to $381.9 million over the past two quarters, and analysts expect earnings to reach about $534.5 million, or $4.72 per share, by around 2028.
• Bulls argue that the company’s shift toward higher growth filtration niches and a stronger aftermarket base underpins this earnings path:
  • Revenue is projected to climb to roughly $4.1 billion, up from the latest trailing $3.7 billion, and analysts also expect margins to expand toward 12.9%, which would support that earnings step up.
  • With shares outstanding expected to decline by about 2.78% per year, even mid single digit revenue growth combined with better margins could translate into faster EPS growth than the top line, aligning with the 9.1% earnings growth forecast.

Supporters see the move into higher margin filtration segments and share count reductions as a potential bridge from today’s $3.24 EPS to the $4.72 target. 🐂 Donaldson Company Bull Case

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Donaldson Company on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

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A good starting point is our analysis highlighting 1 key reward investors are optimistic about regarding Donaldson Company.

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Donaldson’s premium valuation, recent margin slippage, and slower revenue growth versus the broader market leave its current share price exposed if expectations moderate.

If paying up for modest growth feels risky, use our these 906 undervalued stocks based on cash flows to quickly focus on companies where current prices better reflect, or understate, their earnings potential.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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