BMO: Here's What Sets Fortive Apart From Other Industrials

Fortive Corp FTV, a spinoff from Danaher Corporation DHR, reported better than expected earnings Oct. 26 and raised its guidance.

The Analyst

BMO Capital's Scott Graham initiated Fortive with an Outperform rating and $82 price target.

The Thesis

Fortive's operations are above most industrial companies, and it has a high quality portfolio of growth-oriented, market-leading businesses, Graham said. (See Graham's track record here.)

Fortive is expected to demonstrate sales growth at levels above goals and markets, Graham said. Its operating margin is significantly better than the margin of peer companies, and Fortive still has room for improvement, the analyst said. Value-add acquisitions are likely going forward, as Fortive has a goal of investing $5-7 billion, according to BMO. 

Graham also has some concerns about Fortive. Gilbarco Veeder-Root and Matco Tools, both of which are owned by Fortive, are going to slow in the intermediate term, Graham said — and he expects higher acquisition prices in 2017. Fortive should trade with a premium of 25 to 30 percent to the capital goods industrial sector due to better metrics, the analyst said.

In the bullish scenario, Graham sees the stock at $90 and in the bearish scenario, at $60.

The Price Action

Fortive is trading around 1.2 percent lower Wednesday, but it's gained around 35 percent year-to-date.

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