Sunday, May 5, 2019

Fortive's Valuation Already Assumes A Lot Of Improvement

Spun off from Danaher (DHR) and operating according to a broadly similar business philosophy, Fortive (FTV) has long enjoyed a benefit of the doubt with the Street, and that seems to be even more the case today. I like Fortive, but I’m surprised at how willing the Street is in this case to overlook fairly meaningful short-cycle exposure, broadening (or loosening) M&A standards, and a rich valuation for a company that doesn’t (yet) have the sort of recurring revenue mix or margin structure of companies like Danher or Roper (ROP).

I have little doubt that I’ll hear from Fortive shareholders for those comments, but so be it. Like I said, I like this company, and I like the direction it's heading – the premiums management is paying for M&A concern me, but I agree with the strategic rationales for the deals they’re doing. With the implied return looking pretty similar to Danaher and Roper, I’d rather overpay for those two than Fortive at this point in time.

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Fortive's Valuation Already Assumes A Lot Of Improvement

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