Keep An Eye On ITT Through The Reporting Season

The conversation around industrials has shifted away from whether there would be a correction/downturn and toward the question of how long it will last and how deep it will get. Specific to ITT (ITT), the company looks vulnerable to ongoing deceleration in oil/gas capex investment, project delays in the chemicals end-market, and further weakness in the broadly-defined “general industrial” category, not to mention weakness in autos. Some of this seems to be anticipated in the stock price, as the shares have more or less matched the S&P since my last update but modestly underperformed the broader industrial space.

I do believe that ITT is more on the front end of its downturn than in the middle, and I’d look to updates from companies like Emerson (EMR), Flowserve (FLS), Gardner Denver (GDI), and Chart Industries (GTLS) as to the health of oil/gas and chemicals project books, not to mention ongoing aftermarket demand. While I don’t expect any dramatic restructuring efforts from ITT, I do believe the company is well-constructed to “muddle through” the downturn and I would keep a close eye on this name for an opportunity to exploit near-term market pessimism if results/guidance disappoint the investment community. I still believe there is a credible case for a mid-to-high $60’s fair value for ITT at this point, though I do also believe there is some downside risk to earnings expectations for the next 12-24 months.

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Keep An Eye On ITT Through The Reporting Season