Buying the Dip in Fortive Stock is a Strong Move

After climbing to nearly $80 in November 2021, Fortive Corp. (NYSE: FTV) dipped below $60 this month. Shares of the former Danaher division have begun to recover alongside the market rally but still have good upside.

Fortive is among a group of S&P 500 companies that has faced sharp adjustments to their price-to-earnings multiples due to rising interest rates. Trimble, Teledyne Technologies, and other scientific and technical instrument peers have seen similar valuation recalibrations since the start of the year.

With Fortive now trading at a more reasonable 38x earnings and buying pressure pushing the stock back into the low $60’s, the worst may be over. 

Management’s expectation for double-digit earnings growth and easing supply chain constraints this year point to a strong rebound. And when it comes to diversified ways to get that type of growth, Fortive is about as diversified as it gets.

What Does Fortive Do?

With a presence in 50 countries, Fortive is a global provider of connected workflow technologies across several end markets. Customers in the food & beverage, life sciences, marine, oil & gas, semiconductor, and transportation industries rely on Fortive for a range of intelligent operating solutions and precision technologies. The company’s software-enabled solutions designed to improve food safety, workplace safety, and patient care are divided into three distinct businesses.

The largest segment is Intelligent Operating Solutions which last year accounted for 41% of revenue. It provides instrumentation and software for building management including for smart offices and high-tech warehouses. Fluke, a test and measurement tool business, is the best known brand here. 

Then there is the Precision Technologies group, a collection of seven sub-companies that solve technical challenges associated with food and beverage production, clean energy, and next-gen communications. It comprises about one-third of the business. 

Finally, the Advanced Healthcare Solutions division works with hospitals and laboratories to ensure safety standards are met, instruments operate properly, and adherence to complex procedures. Infection prevention technologies, surgical asset management, and therapy automation are among its specialties. 

What are Fortive’s Growth Drivers?

Since Fortive is so well-diversified by geography and end market it's hard to pinpoint any one area that drives growth.  Instead, it relies on contributions from each of its divisions and brands. Last year this amounted to $5.3 billion in sales and 13% growth over 2020. 

From a geographic standpoint, the U.S. accounts for roughly half of revenue followed by China at approximately 12%. So while a healthy U.S. economy is paramount, government relations with and demand from China are significant themes to follow.

Another major growth catalyst is Fortive’s move into the cloud computing space. The company bought Global Traffic Technologies and eMaint Enterprises to allow it to step foot into the fast growing global cloud services market. It is a market that according to Allied Market Research will grow at a 16% annual rate and top $1.6 billion by 2030. 

For now the Global Traffic and eMaint acquisitions will provide access into the asset and equipment management cloud services market which is somewhat of a niche relegated to select industrial markets. Over time, however, it wouldn’t be surprising to see Fortive bring more software-as-a-service (SaaS) businesses into the fold to round out its portfolio and enhance long-term growth prospects. 

Is Fortive Stock a Buy?

Fortive is a unique investment that offers exposure to several growing industries. With the increasing focus on food and workplace safety as well as healthcare quality, its technology-driven products are expected to be in increasing demand. 

For this year management’s projection for adjusted EPS of $3.00 to $3.13, at the midpoint, implies 12% annual growth. Looking ahead to 2023, the Street is forecasting similar year-over-year growth. This means that Fortive is expected to grow well above what is expected for the global economy.

With Fortive investors are really getting about 20 companies rolled into one. Together they address the evolving needs of manufacturers, building managers, and healthcare providers in a forward thinking way. 

The stock therefore is a diversified way to tap into growth across multiple sectors and countries. It comes with a small dividend, but the main attraction is the growth linked to its broad customer base. Trading 23% below its peak, Fortive is a good way to fortify a long-term portfolio.