With Short-Cycle Markets Expected To Fade, Fortive's Next Big Testing Is Around The Corner

Writing about Fortive (NYSE:FTV) back in March of this year, I expressed some concerns about whether the company was really living up to its billing as a "compounder" that could consistently add value through M&A. While liking the company's efforts to build up strong recurring revenue and exposure to long-term secular trends like automation, electrification, ESG, productivity, and safety, as well as the company's prospects for above-average growth, I still had some concerns about the margins, M&A discipline, and valuation.

The shares did subsequently slip into the mid-$50's, a point where prospective returns would have been in the high single-digits, before rallying and outperforming the industrial group. Close to 10% higher now, Fortive has been delivering more of late, and it looks better-placed than many of its peers/comps to navigate this next phase of the economic cycle. Valuation is less exciting now, and unless you're willing to go back to the "good ole days" of 20x-plus EBITDA multiples, it's hard to make the case that Fortive is fundamentally undervalued.

 

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With Short-Cycle Markets Expected To Fade, Fortive's Next Big Testing Is Around The Corner