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ITT Cruises Past Our Expectations as We Meaningfully Lift Our Fair Value by 10%

Joshua Aguilar Equity Analyst

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.

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Company Profile

Business Description

ITT is a diversified industrial conglomerate with nearly $3 billion in sales. After the spin-offs of Xylem and Exelis in 2011, the company’s products primarily include brake pads, shock absorbers, pumps, valves, connectors, and switches. Its customers include original-equipment and Tier 1 manufacturers as well as aftermarket customers. ITT uses a network of approximately 700 independent distributors, which accounts for about one third of overall revenue. Nearly three fourths of the company’s sales are made in North America and Europe. ITT’s primary end markets include automotive, rail, oil and gas, aerospace and defense, chemical, mining, and general industrial.

Contact
1133 Westchester Avenue
White Plains, NY, 10604
T +1 914 641-2000
Sector Industrials
Industry Specialty Industrial Machinery
Most Recent Earnings Dec 31, 2020
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 9,700

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