Morgan Stanley Downgrades Fortive On Valuation After 29% Gain

Fortive Corp FTV has completed a reshaping of its portfolio to include higher-quality assets with lower cyclicality and its stock has rerated to reflect this, according to Morgan Stanley this morning.

Defensive stocks like Fortive seem to have less sector valuation support in contrast to cylicals, in the sell-side firm's view. Morgan Stanley projects limited upside to Fortive's guidance as comps toughen, and said M&A accretion is already expected to drastically accelerate in the second half of 2019.

The Analyst

Joshua Pokrzywinski downgraded Fortive from Overweight to Equal-weight and reduced the price target from $89 to $88.

The Thesis

The sector valuation of high-quality industrials is already high, Pokrzywinski said, adding that Fortive’s valuation seems reasonable. (See his track record here.) 

The company’s stock has gained 29 percent year-to-date, and there are few catalysts for any outperformance, the analyst said. 

The Gilbarco Veeder Root fueling business has been the key driver of growth in recent quarters, he said. Comps are beginning to get tougher, limiting any future upside, Pokrzywinski said. 

The 2019 earnings growth guidance implies a solid acceleration in profitability in the back half of the year, both on a core basis and taking into account recently completed M&A, the analyst said.

“In short, the sector valuation and company-specific catalysts don't support further multiple expansion or earnings revisions in 2019." 

Price Action

Fortive shares were down 1.26 percent at $82.43 at the time of publication Wednesday. 

Related Links:

Benzinga's Top Upgrades, Downgrades For May 8, 2019

Fortive Continues To Add Recurring Revenue, Says Bullish Raymond James

Photo courtesy of Fortive.