On Thursday, RBC Capital adjusted its outlook on shares of Fortive (NYSE:FTV), reducing the price target to $77 from $83, while keeping a Sector Perform rating.
The revision follows Fortive's second-quarter 2024 results, which met expectations but revealed challenges within some of its operations. Notably, the segments Tektronix and EA, as well as its business in China, which accounts for 10% of the company's revenues, are experiencing difficulties.
The company has slightly increased its 2024 guidance, but this appears to be largely due to an anticipated lower tax rate in the second half of the year, which is expected to contribute seven cents to earnings. Without this tax benefit, the guidance would effectively be reduced by five cents. The analyst noted that the current weakness in Fortive's share price is linked to these disappointing factors.
In terms of valuation, Fortive's shares are currently trading well below the three-year relative price-to-earnings (P/E) support level. Despite this, the report from RBC Capital does not see sufficient grounds to adopt a more optimistic stance on the stock at this time. The firm's analysis suggests that the tax rate adjustment is a non-discretionary factor that should be considered when evaluating the company's financial outlook.
In other recent news, Fortive Corporation reported a robust Q2 with earnings and free cash flow at the high end of their guidance, despite a flat core growth.
The 2% revenue increase was primarily driven by acquisitions. The company's Intelligent Operating Solutions and Advanced Healthcare Solutions segments performed notably well, while Precision Technologies saw a decline in revenue.
Fortive is optimistic about the latter half of the year, with the expectation of an improvement in core growth, driven by favorable order rates and strength in its Advanced Healthcare Solutions and software offerings. The company forecasts a total growth of 3% to 4% for the year and an adjusted diluted EPS in the range of $3.80 to $3.86, indicating an 11% to 13% increase year-over-year.
InvestingPro Insights
Fortive Corporation (NYSE:FTV) has been navigating a complex environment, as reflected in its recent second-quarter 2024 performance. Investors considering Fortive's stock should note its impressive gross profit margin of 59.67% for the last twelve months as of Q1 2023, which underscores the company's ability to maintain profitability despite operational challenges. This is consistent with the company's profitability over the last twelve months, as indicated by the recent InvestingPro data.
However, it's important to be aware of the stock's recent downturn, with a one-week price total return of -8.68% and a decline of -4.68% over the past year. Additionally, with a P/E ratio standing at 30.79 and an adjusted P/E ratio for the last twelve months as of Q1 2023 at 28.13, Fortive is trading at a high valuation multiple relative to near-term earnings growth, which may raise concerns about the stock's current pricing.
InvestingPro Tips further reveal that analysts have revised their earnings forecasts downwards for the upcoming period, which could be a signal for investors to exercise caution. On the positive side, analysts predict the company will be profitable this year, which may offer some reassurance regarding Fortive's financial health. For those interested in a deeper analysis, InvestingPro offers additional tips on Fortive's stock performance and valuation. Use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and gain access to all 8 tips available on InvestingPro for Fortive.
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