On Wednesday, UBS initiated coverage on Fortive Corporation (NYSE:FTV) stock with a Neutral rating and a price target of $84.00. The firm pointed out that Fortive's lower relative valuation compared to the broader Electrical Equipment/Multi-Industry (EE/MI) complex might continue until the completion of its planned separation into two independent companies, expected late next year.
The analyst from UBS highlighted that there was a noticeable decline in Fortive's relative valuation beginning in 2021, which coincides with the market's growing emphasis on secular trends such as artificial intelligence and nearshoring. These trends are influencing the flow of capital towards industrial companies that have a more focused end market presence and are aligned with these secular movements.
Fortive's current valuation is seen as a disadvantage when compared to peers like Eaton Corporation PLC (NYSE:ETN) and Trane Technologies (NYSE:TT) PLC, which are trading at higher price-to-earnings ratios in the high 20s to low 30s range for the next twelve months. The diverse mix of end markets that Fortive caters to, both before and after the planned spin-off, is considered a factor in its lower valuation.
The UBS analyst's remarks underscore the market's preference for industrial firms that are tightly integrated with long-term industry trends. Fortive's upcoming split into two companies is a strategic move that could potentially address this valuation gap, but until the separation takes effect, its stock valuation may remain subdued.
The $84.00 price target set by UBS reflects the firm's assessment of Fortive's stock value in the context of these market dynamics and the anticipated corporate restructuring. Investors and market watchers are now aware of UBS's stance on Fortive as the company navigates through its transition period and the evolving industrial landscape.
In other recent news, Fortive Corporation reported robust financial performance in the third quarter of 2024, with adjusted earnings per share (EPS) increasing by 14% and free cash flow rising by 12%. Truist Securities adjusted its outlook on Fortive, reducing the price target to $89 from $90, though still maintaining a Buy rating.
Fortive's full-year 2024 adjusted EPS guidance has been updated, now expecting a slight increase of about $0.03 at the midpoint, resulting in a new forecast of $3.84 to $3.87.
The company's Advanced Health & Sustainability Solutions (AHS) segment emerged as a highlight in the quarter, with organic growth of 9% and a 310 basis point improvement in operating margins year-over-year.
The Intelligent Operating Solutions (IOS) segment experienced customer delays, leading to a core growth of 2%, and Fortive moderated its core growth expectations for IOS.
The Product Realization (PT) segment had mixed results, with core growth down 4% but margins improving by 70 basis points. For the fiscal year 2025, Fortive's free cash flow continues to outperform expectations, and the company is expected to maintain its focus on share buybacks.
Lastly, analysts predict a continued momentum in recurring revenue and a gradual recovery in Precision Technologies for 2025, supported by operational execution and productivity initiatives.
However, potential challenges such as tax rate increases and macroeconomic uncertainties could pose a challenge for EPS growth in 2025. These are recent developments within the company.
InvestingPro Insights
To complement UBS's analysis of Fortive Corporation (NYSE:FTV), recent data from InvestingPro offers additional context. Fortive's market capitalization stands at $26.04 billion, with a P/E ratio of 29.77, aligning closely with the peer valuations mentioned in the UBS report. This valuation is further supported by an InvestingPro Tip highlighting that Fortive is "Trading at a high P/E ratio relative to near-term earnings growth," with a PEG ratio of 3.96.
Despite the valuation concerns, Fortive demonstrates financial strength with impressive gross profit margins, as noted in another InvestingPro Tip. The company's gross profit margin of 59.74% for the last twelve months ending Q3 2024 underscores its operational efficiency, which could be a key factor in its future performance post-separation.
Investors should note that Fortive has shown a revenue growth of 3.06% over the last twelve months, indicating steady, if modest, expansion. This growth, coupled with the company's profitability over the same period, suggests a stable financial foundation as it approaches its planned separation.
For those seeking a deeper understanding of Fortive's position, InvestingPro offers 5 additional tips, providing a more comprehensive view of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.