Vontier - Faster EMV Erosion Is A Near-Term Challenge, And The Street Needs To See A Better Path For Growth

I've written in the past that oddly undervalued stocks make me nervous, and Vontier (NYSE:VNT) is at least partly a case in point. Writing about the stock a year ago, I wondered why the shares seemed so cheap, and the shares have fallen another 20% since then despite posting better-than-expected financial results.

While management's guidance for a quicker decline in EMV-related revenue certainly drove recent weakness, the reality is that Vontier shares have been weak since September of 2021 (the time of the company's first significant M&A transaction) despite generally good results and a decent outlook. While I can understand some degree of frustration over capital deployment and concerns about near-term growth leverage, expectations are so low now that low single-digit growth can drive a double-digit forward return.

 

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Vontier - Faster EMV Erosion Is A Near-Term Challenge, And The Street Needs To See A Better Path For Growth

Vontier Looks Oddly Cheap Ahead Of Major M&A Deployment

 

Years of investing will make you paranoid, or at least highly suspicious, when you find what appear to be bargains hiding in plain sight. There are some issues with Vontier (VNT), including a business that could be more vulnerable to the shift toward electrified passenger vehicle powertrains, but given the company's pedigree (part of the Danaher (DHR)/Fortive (FTV) family tree), a good CEO, and the explicit intention of deploying capital toward growth M&A, I find the discount to fair value today to be odd.

With what looks like fair value in the low-to-mid-$40s, I do wonder what I'm missing about Vontier today. Yes, there are EMV headwinds that will weigh on growth, and the business isn't as "future-proof" as you may like. M&A also carries risk, as the company could overpay or go down roads that lead nowhere. Still, with the base business undervalued on what I think are reasonable, if not conservative, assumptions, I think this is a name to check out.

 

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Vontier Looks Oddly Cheap Ahead Of Major M&A Deployment