Fortive Corporation

Date: May 12, 2024.

Company’s Overview

Fortive Corporation (FTV) is a diversified industrial technology conglomerate headquartered in the USA. They design, develop, manufacture, and distribute essential technologies for connected workflow solutions. Their products and services span a wide range, from test and measurement instruments to healthcare sterilisation equipment, serving various industries globally.

Competition

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

Related Risks

Despite its diversification, Fortive Corporation faces some hurdles. An economic downturn could dampen demand for their industrial technologies. Supply chain disruptions could hinder production or materials sourcing. Currency fluctuations can impact their global profitability. Competition pressures them on market share and pricing. Acquisitions to expand their offerings can be complex and challenging to integrate. To stay ahead, Fortive needs to focus on innovation, operational efficiency, navigating economic downturns, and a reliable supply chain.

Financial Performance

Company’s Revenues

Revenues from 2021 to 2023:

• Fortive annual revenue for 2023 was $6.065B, a 4.11% increase from 2022.
• Fortive annual revenue for 2022 was $5.826B, a 10.87% increase from 2021.
• Fortive annual revenue for 2021 was $5.255B, a 13.38% increase from 2020.

The yearly revenue from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s Net Income

Net Income from 2021 to 2023:

• Fortive annual net income for 2023 was $0.866B, a 14.65% increase from 2022.
• Fortive annual net income for 2022 was $0.755B, a 31.59% increase from 2021.
• Fortive annual net income for 2021 was $0.574B, a 62.84% decline from 2020.

The yearly net income from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s EPS

EPS from 2021 to 2023:

• Fortive 2023 annual EPS was $2.43, a 15.71% increase from 2022.
• Fortive 2022 annual EPS was $2.1, a 28.83% increase from 2021.
• Fortive 2021 annual EPS was $1.63, a 63.7% decline from 2020.

Company’s Free Cash Flow

Free Cash Flow from 2021 to 2023:

• Fortive annual free cash flow for 2023 was $1.253B, a 3.79% increase from 2022.
• Fortive annual free cash flow for 2022 was $1.207B, a 31.87% increase from 2021.
• Fortive annual free cash flow for 2021 was $0.916B, a 32.99% decline from 2020.

The yearly free cash flow from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Shares Outstanding

On February 17, 2022, FTV’s Board approved to repurchase up to 20 million shares of the Company’s outstanding common stock. As of December 31, 2023, there were 9 million shares remaining for repurchase under the program.

The Company overall has increased its shares outstanding by almost 3% from 2012.

Financial Strength

Their asset-to-liability ratio of 2.57 indicates a comfortable buffer for unexpected costs or strategic investments. For every $1 they owe in liabilities, they have $2.57 in assets to cover them. This provides some flexibility for navigating economic downturns or pursuing growth opportunities.

Looking at their short-term solvency, the current ratio of 2.05 suggests adequate resources to meet their short-term obligations (due within a year). This metric measures a company’s ability to cover debts using short-term assets (cash, receivables).

Fortive’s debt situation has demonstrably improved. Their net debt of $1.9 billion represents a significant 64% decrease from 2019. This substantial reduction in debt strengthens their financial position and frees up cash flow for investments in research and development, strategic acquisitions, or even share buybacks to reward investors.

Valuation

Based on the analysis performed, FTV’s price is overvalued. As key metrics, we considered 10% Required Rate of Return (RRR) and 20% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 10 buy, 4 overweight, 9 hold, 0 underweight and 0 sell ratings. The consensus rating leans toward overweight.

Fortive Corporation presents a mixed picture for investors. While their profitability is impressive, with gross and net margins exceeding industry averages (59.26% vs 24.41% and 14.27% vs 10.84%, respectively), their growth trajectory raises concerns. A negative 10-year CAGR for both revenue (-0.44%) and net income (-0.2%), alongside a meagre 10-year EPS CAGR of -0.4% despite a slight 3% increase in outstanding shares since 2012, indicates sluggish growth. Their return on invested capital (ROIC) of 6.87% is also underwhelming.

The valuation adds another layer of complexity. The P/E ratio of 32.59 is slightly overvalued compared to the industry median of 23.22. While their financial strength has improved with a reduced net debt of $1.9 billion (down 64% from 2019) and decent asset-to-liability ratio (2.57) and liquidity ratio (2.05), it’s not exceptional.

Overall, Fortive offers superior profitability but lacks growth momentum. Investors seeking a high-growth company with a compelling valuation might be better served looking elsewhere.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.