Key Takeaways:
Current Price: $74.3 Price Target: $88
Position Size: 1.90% 1-year performance: +20%
Fortive (FTV) reported 3Q earnings last night. Overall the recovery is taking hold, and FTV is showing its strength with pricing gains this quarter.
- Organic growth of +9% (+12% total growth)
o All three segments had positive sales growth:
Ø Advanced Healthcare Solution +5% organic (24% of revenue): elective procedures in the US were below pre-covid levels and impacted the sales of consumables products. However capital equipment continues to grow
Ø Precision Technologies +7.7% organic (36% of revenue)
Ø Intelligent Operating Solutions +13% organic (41% of revenue)
- Software-as-a-service grew 13%: FTV is building scale and differentiation with its software offerings: it has almost $750M of annualized revenue growing +double-digits
- with high recurring revenue / operating margins
- Adjusted operating margin 22.8%, +325bps, above guidance, thanks to multiple drivers: software-as-a-service strength, better pricing (+2.2%) and cost control benefits
- There is good momentum going into 4Q and 2022 thanks to order growth of 20%, amid the supply-chain challenges
- Some of the demand is being pushed-out to 2022 on delays, but remains strong and should supply returns to normal little by little, growth in 2022 would be better than the mid-single-digit target
2021 guidance updated:
· narrowed 2021 guidance for adjusted EPS to $2.70-$2.75 (vs $2.65-$2.75 prior), up 29-32% y/y
· Organic sales growth now seen at 10.5-11% (vs 10.5-12% prior)
· Adjusted operating margins at 23-23.5% (vs 22.5-23.5% prior)
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
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109