FTV Stock Rises 0.5% – Analyzing Valuation in Detail

Fortive (FTV) stock climbed 0.5 % this evening. According to our metrics, the company seems overvalued at today's prices. In the below analysis, we will put Fortive's valuation in the context of its mixed growth prospects and mixed market sentiment, which are also strong drivers for share price.

Fortive Corporation designs, develops, manufactures, markets, and services professional and engineered products, software, and services worldwide. The large-cap Industrials company is based in Everett, United States and has 18,000 full time employees.

FTV Has a Higher P/E Ratio Than the Sector Average

Compared to the Industrials sector's average of 22.19, Fortive has a trailing twelve month price to earnings (P/E) ratio of 29.7 and an expected P/E ratio of 19.0. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $2.33 or forward earnings per share of $3.65.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Fortive's P/E ratio is higher than its sector average of 22.19, we can deduce that the market is overvaluing the company's earnings.

Fortive Is Overvalued in Terms of Expected Growth

Fortive's PEG ratio is 2.95. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in Fortive's case, it tells us the company is overvalued.

FTV Has an Average P/B Ratio

Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.

Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Fortive, the P/B value is 2.42 while the average for the Industrials sector is 4.06.

FTV's Weak Cash Flow Generation Is Troubling

The table below shows that Fortive is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Fortive's case, free cash flow is growing at an average rate of -0.2% with a coefficient of variability of 1410.6%. We can also see that cash flows from operations are evolving at a 0.3% rate, versus 7.8%:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023 1,371,000 109,800 1,261,200 4.46
2022 1,303,200 95,800 1,207,400 28.05
2021 992,900 50,000 942,900 -30.72
2020 1,436,700 75,700 1,361,000 13.71
2019 1,271,400 74,500 1,196,900 -6.09
2018 1,344,400 69,900 1,274,500

Fortive's Margins Are Strong

If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Fortive's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.

Fortive's Gross Margins

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2023 6,011,500 2,472,400 59 3.51
2022 5,825,700 2,462,300 57 1.79
2021 5,254,700 2,247,600 56 0.0
2020 4,634,400 2,025,900 56 3.7
2019 4,563,900 2,080,700 54 -5.26
2018 3,800,400 1,614,200 57

Fortive's Operating Margins

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2023 6,011,500 2,025,000 19 11.76
2022 5,825,700 1,956,600 17 13.33
2021 5,254,700 1,839,500 15 -54.55
2020 4,634,400 1,748,400 33 230.0
2019 4,563,900 1,719,000 10 -41.18
2018 3,800,400 1,262,800 17

Fortive's cost of revenue is growing at a rate of 7.4% in contrast to None% for operating expenses. Sales revenues, on the other hand, have experienced a 7.9% growth rate. As a result, the average gross margins growth is 0.5 and the average operating margins growth rate is 1.4, with coefficients of variability of 6.5% and 621.1% respectively.

Fortive Benefits From Positive Market Signals

The market sentiment regarding Fortive is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $90.0 to $66.0. FTV is trading -10.82% away from its target price of $77.71. 0.8% of the company's shares are tied to short positions, and 97.1% of the shares are held by institutional investors.

Date Reported Holder Percentage Shares Value
2023-09-30 Vanguard Group Inc 11% 39,218,267 $2,717,826,022
2023-09-30 T. Rowe Price Investment Management, Inc. 10% 35,195,693 $2,439,061,632
2023-09-30 Blackrock Inc. 9% 31,811,672 $2,204,548,966
2023-09-30 Wellington Management Group, LLP 5% 19,092,535 $1,323,112,733
2023-09-30 FMR, LLC 4% 15,739,254 $1,090,730,350
2023-09-30 Royal Bank of Canada 4% 14,838,347 $1,028,297,492
2023-09-30 State Street Corporation 4% 13,368,703 $926,451,158
2023-09-30 Flossbach von Storch AG 3% 10,595,464 $734,265,687
2023-09-30 Viking Global Investors, L.P. 2% 8,325,095 $576,929,108
2023-09-30 Geode Capital Management, LLC 2% 7,583,755 $525,554,244
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.