Fortive Earnings: Positive Core Revenue Growth Despite Slowdown in China and Sensing Businesses

We’ve trimmed our fair value estimate for narrow-moat-rated Fortive FTV to $87 per share from $89 to reflect our slightly more muted near-term revenue growth projections, partially offset by the time value of money. The shares are currently trading at a roughly 26% discount to our fair value estimate, which we see as an attractive entry point.

Fortive’s third-quarter core revenue increased 2.5% from the same period last year, as positive growth across most regions was partially offset by a low-double-digit decline in China. Intelligent operating solutions core revenue grew 4%, led by high-single-digit growth in facility and asset lifecycle. Precision technologies core revenue was up 0.9% despite a mid-single-digit decline in sensing. Advanced healthcare solutions core revenue increased 2.2%, as stronger underlying demand was partially offset by a roughly 300-basis-point channel transition headwind at Advanced Sterilization Products. Fortive expanded its third-quarter adjusted core operating margin by 150 basis points year over year, from 24.4% to 25.9%.

Fortive announced the acquisition of EA Elektro-Automatik, a leading supplier of electronic test and measurement solutions, for $1.45 billion, which reflects a midteens 2024 EBITDA multiple. Fortive management expects the acquisition to be accretive to revenue growth and operating margins and reach a return on invested capital in the high single digits by year three and double digits by year five.

Management narrowed its full-year outlook and now anticipates core revenue growth of 5% (5%-6% previously) and adjusted EPS of $3.37-$3.40 ($3.36-$3.42 previously). Looking beyond 2023, Fortive expects hardware products and healthcare to normalize to mid-single-digit growth through the cycle, while software and other recurring revenue streams continue to deliver consistent core revenue growth in the high-single-digit to low-double-digit range.