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Fortive stock target cut, retains buy rating on lower growth outlook

EditorNatashya Angelica
Published 01-11-2024, 05:36 pm
FTV
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On Friday, Truist Securities adjusted its outlook on Fortive (NYSE:FTV) shares, reducing the price target to $89 from $90, while maintaining a Buy rating on the stock. The decision came as Fortive's shares fell by 3% compared to the S&P 500, which remained relatively flat.

This decline occurred despite Fortive reporting a third-quarter adjusted earnings per share that surpassed expectations. The company's performance was aided by favorable tax conditions but was offset by a modest adjusted operating income due to increased corporate expenses.

Fortive has updated its full-year 2024 adjusted earnings per share guidance, now expecting a slight increase of about $0.03 at the midpoint, resulting in a new forecast of $3.84 to $3.87, or $3.86 at the midpoint.

This change reflects a reduced full-year tax rate of approximately 11%, a decrease from the previous estimate of around 12%. However, Fortive has also adjusted its sales outlook for the year, guiding for lower core growth of around 1%, compared to the previous 2-3% estimate.

The 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. AHS has also revised its full-year guidance, now expecting core growth in the mid-single to high-single digits percentage range, up from the prior mid-single digits estimate.

Moreover, margins are projected to increase by 200 basis points year-over-year to approximately 26.2%, exceeding the previous forecast of around 25.7%.

On the other hand, the Intelligent Operating Solutions (IOS) segment experienced customer delays in its Fluke and FAL businesses, leading to a core growth of 2%. Consequently, Fortive has moderated its core growth expectations for IOS to low-single to mid-single digits from the previous mid-single digits, although it still expects to maintain a 100 basis point margin improvement for the year.

The Product Realization (PT) segment had mixed results, with core growth down 4% but margins improving by 70 basis points. The core growth guidance and margins for PT remain unchanged for the year. Notably, PT saw an increase in Tektronix orders in the high-single digits, as well as double-digit growth in Aerospace & Defense and utility subsystems, with sensing orders also improving in the mid-single digits.

Looking ahead to fiscal year 2025, the analyst pointed out the significance of the guidance, despite the planned spin-off not occurring until the fourth quarter of 2025. The previous target of $4.50 has been reconsidered given the base in 2024. However, Fortive's free cash flow continues to outperform expectations, and the company is expected to maintain its focus on share buybacks.

Post-buyback, a more balanced approach to acquisitions and returning cash to shareholders is anticipated for the remaining company. The timing of the PT spin-off is expected to coincide with an uptick in industrial organic growth.

In other recent news, Fortive Corporation reported a strong financial performance in the third quarter of 2024, with a notable 14% increase in adjusted earnings per share (EPS) and a 12% rise in free cash flow.

The company's robust results were driven by growth in the Advanced Healthcare Solutions (AHS) and Intelligent Operating Solutions (IOS) segments, contributing to record adjusted gross and operating margins. Fortive is also progressing with plans to spin off its Precision Technologies segment and has repurchased approximately 4 million shares in Q3.

The company anticipates a continuation of this positive trend in recurring revenue and a gradual recovery in Precision Technologies, despite potential geopolitical and macroeconomic uncertainties. The fourth-quarter guidance projects a 3% revenue growth and adjusted EPS of $1.11 to $1.14. Full-year adjusted diluted EPS is projected to rise to $3.84 to $3.87, indicating a 12% to 13% year-over-year increase.

In terms of future expectations, 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 and investors are encouraged to monitor Fortive's progress and performance.

InvestingPro Insights

To complement the analysis of Fortive's recent performance and outlook, InvestingPro provides additional insights that may be valuable for investors. According to InvestingPro data, Fortive currently has a market capitalization of $24.78 billion and trades at a P/E ratio of 29.83, which is relatively high compared to its near-term earnings growth potential.

One of the InvestingPro Tips highlights Fortive's impressive gross profit margins, which is reflected in the company's latest data showing a gross profit margin of 59.74% for the last twelve months as of Q3 2024. This aligns with the article's mention of improved margins in the Advanced Health & Sustainability Solutions segment.

Another relevant InvestingPro Tip notes that Fortive operates with a moderate level of debt, which could be reassuring for investors considering the company's future plans and potential spin-off mentioned in the article. Additionally, InvestingPro indicates that analysts predict the company will be profitable this year, supporting the positive outlook despite some adjustments in growth expectations.

For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Fortive, providing a deeper understanding 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.

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