On Wednesday, JPMorgan (NYSE:JPM) adjusted its stance on Fortive Corporation (NYSE:FTV), downgrading the stock from Overweight to Neutral and reducing the price target to $90 from the previous $95. The decision was made in line with the firm's first-quarter 2024 Earnings Pregame report, also removing Fortive from the Analyst Focus List.
The analyst cited several reasons for the downgrade, including the potential risk to the recovery of the Professional Instrumentation and Industrial Technologies (PT/Tek) segment in the second half of the year.
This risk might hinder the company's ability to raise its financial outlook, as the current forecast already anticipates a recovery. Despite maintaining near-consensus earnings estimates for 2024 and 2025, the sluggish order trends observed so far this year could lead to sales aligning with orders rather than exceeding them.
Fortive has been experiencing lower-than-expected sales in the first half of the year, only partially offset by an excess backlog that is nearly depleted. The backlog stood at $100 million at the end of 2023, a significant drop from $350 million at the end of 2022. The analyst expressed concerns that orders might not rebound as swiftly as anticipated, which could result in sales falling short.
While there are potential upsides, such as improved margins in the Advanced Healthcare Solutions (AHS) and growth in the Industrial Scientific Operations (IOS), which includes Fluke and Fortive Automotive Logistics (FAL), these positives may not be sufficient to counterbalance potential shortfalls in the PT/Tek segment.
Furthermore, the analyst noted that recent mergers and acquisitions activity indicates challenges in achieving first-year earnings per share accretion due to the cost of financing, suggesting limited earnings upside from acquisitions made within the year.
In comparison to other companies in the sector, the analyst pointed out that Fortive's mixed prospects, when weighed against firms with stronger growth market exposure or those with discounted valuations that could see modest upside, make the current stock price—which is trading roughly in line with the sector—appear fair. Consequently, the rating has been lowered to Neutral.
InvestingPro Insights
In light of JPMorgan's recent assessment of Fortive Corporation, considering real-time data and insights from InvestingPro could provide investors with additional context. Fortive's market capitalization stands at $28.48 billion, reflecting its substantial presence in the industry. The company's impressive gross profit margin, which has reached 59.26% in the last twelve months as of Q4 2023, underscores its efficiency in managing production costs relative to its peers.
InvestingPro Tips suggest that while Fortive is trading at a high earnings multiple with a P/E ratio of 33.05, it is also viewed as having liquid assets that exceed its short-term obligations, indicating a strong balance sheet position. Additionally, analysts predict the company will be profitable this year, which aligns with a profitability track over the last twelve months. Investors should note that Fortive has experienced a strong return over the last three months, with a 3-month price total return of 18.9%, showcasing recent market confidence in the stock.
For those interested in a deeper dive into Fortive's financial health and future prospects, InvestingPro provides a comprehensive suite of metrics and expert analysis. Utilize coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and gain access to the full list of 9 additional InvestingPro Tips for Fortive at https://www.investing.com/pro/FTV.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.