Despite not having a lot of the traits that investors find most desirable today in industrials (short cycle exposure, leverage to ESG/climate/energy efficiency, and/or leverage to onshoring), ITT Corp. (ITT) has nevertheless shrunk some of the valuation gap I saw last quarter and outperformed its peer group by around 3% to 5% (depending on how you define the group).
I still believe that there's meaningful upside here and that the Street doesn't fully appreciate the story - from the "more short cycle than you might think" aspects of the Industrial Process business to the strong share growth opportunities in Motion and the multiple targets for margin improvement. With modeling assumptions that work out to a long-term revenue growth rate around 3% to 4% and an FCF growth rate closer to 7%, I believe ITT is still priced for double-digit annualized returns from here.
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