Key Takeaways:
Current Price: $77 Price Target: $91
Position Size: 2.08% 1-year performance: +0.7%
Fortive released its 2Q19 earnings, showing a mixed quarter with softer organic growth (+2% vs. 3-4% guidance) due to a worsening of its short-cycle business, much more so than when it was last discussed by management during 2Q (something that HON also mentioned being cautious about last month). Because of this, FTV is cutting its full year guidance: EPS is now expected to be $3.45-3.60 from $3.55-3.65 (~2% cut) due to lower top line growth (from 3-5% previously now 2.5-3.5%) and macro uncertainty. On the bright side, its EMV business (fuel retailing) is picking up momentum, and recent acquisitions should start contributing to organic growth in 4Q.
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
$FTV.US
[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