Fortive's Post-Spin Potential: Unlocking Value Amid Tariff Headwinds

The separation of Fortive Corporation (NYSE: FTV) into two independent companies—Fortive and Ralliant—on June 28, 2025, marks a pivotal moment for investors. While near-term tariff pressures have clouded the outlook, the spin-off has created a compelling opportunity to buy FTV at what appears to be an undervalued price. By focusing on margin resilience, disciplined capital allocation, and upcoming catalysts, Fortive's post-spin narrative positions it as a hidden gem in industrial equities.

Valuation Mispricing: A Split for Value Creation

The spin-off of Ralliant (NYSE: RAL) has unlocked undervalued assets by separating Fortive's core businesses—Intelligent Operating Solutions and Advanced Healthcare Solutions—into a standalone entity. At current valuations, FTV trades at ~15x forward earnings, below its five-year average of ~18x and well below peers like Danaher (DHR) at ~22x. The disconnect stems from short-term tariff-related pricing pressures and macroeconomic uncertainty, which investors have overreacted to.

The split also isolates Fortive's ~50% recurring revenue stream (software, subscriptions, and services) from the more cyclical Precision Technologies business now at Ralliant. This separation should allow FTV to command a higher multiple as its earnings become more predictable, akin to software-driven peers like Trimble (TRMB).

Strategic Catalysts: Buybacks, Leadership, and Investor Days

The June 10 Investor Day (webcast replay available at www.fortive.com) laid the groundwork for FTV's post-spin strategy, emphasizing three key catalysts:

1. Share Buybacks: Fortive has $550 million from Ralliant's pre-spin dividend and a 20M-share general repurchase program. At current prices (~$50/share), this equates to ~$1 billion in buybacks.

2. Leadership Transition: Olumide Soroye's appointment as CEO signals a focus on operational excellence. His track record in scaling high-margin businesses aligns with FTV's goal of expanding margins further via its Fortive Business System (FBS), now amplified by AI integration.

3. Recurring Revenue Growth: FTV's ~$2 billion in annual recurring revenue (50% of total) is growing at ~6% annually. With healthcare and industrial automation markets expanding, this segment could outperform even as tariffs bite cyclical markets.

The upcoming Q2 earnings call (scheduled for late July) will provide an updated full-year outlook, excluding Ralliant's now-discontinued operations. This clarity should reduce uncertainty and drive revaluation.

Tariff Headwinds: Temporary, Not Terminal

Fortive's Q2 revenue guidance—flat to slightly down—reflects tariff-driven pricing pressures and delayed demand in sectors like aerospace and utilities. However, recurring revenue's stability (up 4% in Q1) and margin resilience (adjusted operating margin expanded 20 bps to 25.3% in Q1) suggest FTV can weather this storm.

The tariffs are a near-term drag, not a death knell. Once resolved, FTV's exposure to secular trends like healthcare digitization and industrial automation will drive catch-up growth. The spin-off's cost savings and focus also reduce operational drag, making FTV leaner and more agile.

Investment Thesis: Buy FTV at a 20% Discount to Fair Value

FTV trades at a ~20% discount to its fair value based on a discounted cash flow (DCF) model reflecting $6.50 in 2026 EPS and a 17x multiple. The risk-reward here is compelling:
- Upside: $85/share if FTV's recurring revenue stream drives a 20x multiple.
- Downside: Limited, as FTV's balance sheet remains investment-grade, and buybacks buffer EPS erosion.

Action Item: Accumulate FTV at current levels, with a 12-month price target of $65–$70. The catalysts—Q2 earnings, buybacks, and margin resilience—are all in place to drive revaluation.

Risks to Consider

• Geopolitical Risks: Prolonged trade disputes could extend tariff impacts.
• Healthcare Sector Slowdown: A U.S. recession could delay hospital spending.

However, FTV's global footprint (50+ countries) and diversified end markets mitigate regional risks.

Conclusion: A Value Play with Growth Legs

Fortive's spin-off has created a rare opportunity to buy a high-margin industrial leader at a discount. By focusing on its resilient recurring revenue, disciplined capital returns, and upcoming catalysts, FTV is primed to outperform once tariffs fade. Investors who act now may capture both valuation reversion and long-term growth.

Rating: Buy
Price Target: $65–$70 (12 months)
Key Catalysts: Q2 earnings (July), margin expansion, buyback execution.

Stay tuned for Fortive's July earnings report—the next step in proving this valuation thesis right.