When you carry the legacy of Danaher (NYSE:DHR) with you, expectations are going to be high. That is already the case for Fortive (NYSE:FTV), as this high-quality industrial conglomerate has debuted with a premium valuation and high expectations for growth. That said, those expectations aren't necessarily unreasonable, as the company's existing businesses already enjoy good market share, solid margins, and attractive free cash flow.
Valuing a stock like Fortive is
tricky. If you exclude the impact of future M&A, you're largely
missing the point of the business (which is to add value by skillful
M&A selection, integration, and execution). On the other hand,
modeling the impact of future M&A is a level of guesswork above and
beyond the assumptions that underlie all modeling. Consequently, while
Fortive doesn't look particularly cheap today (particularly after the
post-election run), I wouldn't ignore it simply on the basis of
valuation and would, at the very least, keep this on a watch list.
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Fortive Could Be A New Industrial Star