Analyst Note| Joshua Aguilar |
Narrow-moat ITT had a solid fourth quarter that meaningfully outperformed our expectations. On the heels of this outperformance and confidence in ITT’s outlook, we raise our fair value estimate to $74 per share from $67. While management’s 2021 top line guide is within our expectations, the $7 fair value raise was primarily due to a 100-basis point raise in our 2021 adjusted operating margin expectations, which in turn raised our midcycle margin assumptions. Even so, we expect an additional fair value raise in the $5 per share range as we review ITT’s 10-K and incorporate an additional year in our model. This would put us just ahead of the stock price, which reflects our view that ITT’s stock reflects a lot of the company’s upside. Nonetheless, we’re still slightly below Refinitiv consensus price targets, even as our fundamental projections remain above consensus, which we attribute to our normalized weighted average cost of capital. We value ITT at 20 times our 2021 adjusted EPS expectations of $3.70.