Key Takeaways:
Current Price: $69 Price Target: $83 NEW
Position Size: 2.06% 1-year performance: +2%
- During the fourth quarter, Fortive business returned to growth across all segments, and profitability continued to improve
- Organic growth of +0.7%, reported growth (includes acquisitions and FX) +4.9%
- Adjusted grows margin +160 bps y/y
- Adjusted operating margin +100bps
- Adjusted EPX +18.6% y/y
- FCF +39% y/y
- Results per region varied: Asia Pacific saw low single digits growth (China + high single digits), Western Europa had high single digits growth, and North America was the only negative being down slightly
- Customer site access has been difficult, slowing down growth
- Fortive has significantly reduced its leverage post Vontier spin-off:
- Debt reduction of $3B
- Net debt/EBITDA stands at 1.3X (from 2.5X), which leaves room for future acquisitions – FTV is willing to stretched its balance sheet to up to 3.5X for the right deal
- Fortive’s strategy to move its portfolio towards more technology focused businesses (higher growth/higher recurring revenue) has taken a big jump forward with the spin-off of Vontier
- Recurring revenue now 39% of sales
- FY21 guidance:
- Organic growth of 4-7% (total reported 6.5%-9.5%)
- Adjusted operating margin of 22%-23%
- Adjusted EPS +15%-22%
- FCF won’t grow as much in 2021 as the company is facing a $50M headwind related to the CARES Act (paying back some taxes), and less working capital improvements as it is growing some new businesses
- We increased our price target to reflect the good guidance for 2021
FTV Thesis:
- Market leader:
- Leadership position in most of the markets they serve
- Experienced leadership team
- Above industry margins with strong cash flows
- Quality:
- FCF yield ~5%
- Organic growth target of 3-3.5% (4-5% in last 2 quarters after being under the target in prior quarters)
- M&A strategy to enhance top line growth
- Margins expansion from new products introduction, continued application of the Fortive Business Systems and M&A integration
- Shareholder friendly:
- Management team focused on shareholder wealth creation through top line sustainability and margin expansion
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FTV.US
Category: earnings
Tag: FTV