Today we're going to take a closer look at large-cap Industrials company Fortive, whose shares are currently trading at $65.4. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
Fortive Corporation designs, develops, manufactures, markets, and services professional and engineered products, software, and services worldwide. The company belongs to the Industrials sector, which has an average price to earnings (P/E) ratio of 20.49 and an average price to book (P/B) ratio of 3.78. In contrast, Fortive has a trailing 12 month P/E ratio of 28.1 and a P/B ratio of 2.28.
Fortive's PEG ratio is 2.71, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
The Company May Be Profitable, but Its Balance Sheet Is Highly Leveraged:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $3,800 | $4,564 | $4,634 | $5,255 | $5,826 | $5,973 |
| Gross Margins | 57% | 54% | 56% | 56% | 57% | 57% |
| Operating Margins | 17.0% | 10.0% | 33.0% | 15.0% | 17.0% | 18.0% |
| Net Margins | 77.0% | 16.0% | 35.0% | 12.0% | 13.0% | 13.0% |
| Net Income (MM) | $2,914 | $739 | $1,613 | $614 | $755 | $800 |
| Net Interest Expense (MM) | $77 | $143 | $148 | $103 | $98 | $124 |
| Depreciation & Amort. (MM) | $70 | $80 | $74 | $75 | $84 | $84 |
| Earnings Per Share | $8.21 | $1.97 | $4.49 | $1.63 | $2.1 | $2.25 |
| Diluted Shares (MM) | 351 | 340 | 359 | 352 | 361 | 345 |
| Free Cash Flow (MM) | $1,274 | $1,197 | $1,361 | $943 | $1,207 | $1,199 |
| Capital Expenditures (MM) | $70 | $74 | $76 | $50 | $96 | $104 |
| Net Current Assets (MM) | -$1,814 | -$3,395 | -$1,623 | -$4,816 | -$3,376 | -$3,212 |
| Long Term Debt (MM) | $2,975 | $4,826 | $2,830 | $1,807 | $2,252 | $1,978 |
| Net Debt / EBITDA | 3.15 | 8.09 | 0.92 | 2.18 | 2.37 | 1.96 |
Fortive has growing revenues and increasing reinvestment in the business, wider gross margins than its peer group, and decent operating margins with a stable trend. However, the firm suffers from declining EPS growth and a highly leveraged balance sheet. Finally, we note that Fortive has irregular cash flows.
