Fortive Faces Uncertainty After RAL Spin-Off: Analyst Maintains Hold Rating

Fortive's recent RAL spin-off has altered its business structure, making its future performance uncertain. The company's best-performing division has slowed down, while other segments have struggled to meet expectations. The shift from a compounder to a more focused asset evaluation model raises concerns. Analyst Joseph C Giordano from TD Cowen maintains a Hold rating and a $50.00 price target.

Fortive Corporation has recently undergone significant corporate restructuring with the spin-offs of its Retail Automation Logistics (RAL) and Precision Technologies segments. These moves have reshaped the company's business structure, impacting its performance and investor sentiment.

The RAL spin-off, completed in September 2023, resulted in the creation of Ralliant Corporation, which now trades under the symbol "RAL" on the NYSE. The move led Fortive to estimate its second-quarter revenue and core revenue to be flat to slightly down, with the spun-off segment experiencing a mid-single-digit decline. Despite these challenges, Fortive expects its second-quarter consolidated adjusted earnings per share to remain near the midpoint of its previous guidance range [1].

Analyst Joseph C. Giordano from TD Cowen downgraded Fortive's stock rating from Buy to Hold on Tuesday, significantly reducing the price target from $85.00 to $50.00. Giordano cited concerns about Fortive's growth trajectory, noting that the company's strongest business unit has decelerated after a period of robust performance. Other segments are struggling to meet expectations and lagging behind competitors. The research firm acknowledged that Fortive has lowered performance expectations with two recent guidance cuts, which has reset the bar for the company's future results [2].

While Fortive's share buyback program provides some support for the stock, TD Cowen concluded that better investment opportunities exist elsewhere in the market. This sentiment is echoed by other analysts. JPMorgan reiterated an Overweight rating on Fortive, setting a price target of $65, citing the company's nearly 5.5% free cash flow yield as a standout feature. Citi raised its price target to $59 while maintaining a Neutral rating, noting potential for healthy growth and strong free cash flow over time. Raymond James lowered its price target to $65 from $90, maintaining an Outperform rating, and highlighted the company's simplified business structure post-spin-off as a positive development [1].

The shift from a compounder to a more focused asset evaluation model raises concerns about Fortive's future performance. The company's gross profit margins remain impressive at 60%, but the deceleration of its best-performing division and the underperformance of other segments pose challenges. Investors will closely monitor Fortive's ability to navigate these changes and adapt to the new business landscape.

References:
[1] https://www.investing.com/news/analyst-ratings/fortive-stock-rating-downgraded-to-hold-by-td-cowen-on-growth-concerns-93CH-4135133
[2] https://za.investing.com/news/analyst-ratings/fortive-stock-rating-downgraded-to-hold-by-td-cowen-on-growth-concerns-93CH-3789270