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ITT Executing Well, But The Bull Case Has Become The Base Case

Mar. 02, 2021 12:01 PM ETITT Inc. (ITT)EMR, ETN, FLOW
Stephen Simpson profile picture
Stephen Simpson


  • ITT posted better than expected revenue and margins in the fourth quarter, with particular strength in Motion Technologies, but guidance for '21 looked a touch conservative.
  • Motion Tech remains the sizzle to the story, as the company continues to gain share on established platforms and new EV/hybrid programs.
  • Aerospace, chemicals, and oil/gas will still be under pressure in 2021 (collectively one-third of sales), but all should start seeing better demand in the second half.
  • ITT's outperformance has shrunk the relative discount, but I believe there's still a "first among equals" argument for owning ITT, particularly with more self-help and M&A opportunities.

As a shareholder, I can’t really complain about the performance of ITT (NYSE:ITT) over the last few months. I liked ITT better on a relative value basis to names like Dover (DOV), Eaton (ETN), Emerson (EMR), and Parker Hannifin (PH) back in November, and ITT shares have outperformed that group, as well as outperforming the broader industrial space by more than 15%.

All good things come to an end, and so too with ITT being a standout value/GARP option in the industrial space. I still like ITT operationally, and I’m still bullish on under-appreciated opportunities in auto, control technologies, and process, as well as margin improvement potential and M&A optionality. Still, I feel like more of this is recognized in the share price now. ITT shares still offer a better-than-average total return potential, but it’s not a name I can pound the table as hard for as before.

Outperformance In A Tough Quarter

ITT’s fourth quarter wasn’t good in an absolute sense, but it was pretty respectable relative to peer group performance and sell-side expectations.

Revenue fell 4% in organic terms to $709M, matching the broad industrial sector average for the quarter and beating expectations by 8%, with each segment beating. Gross margin declined about a point (to 30.8%), but operating cost management was good, and operating income rose 8% to $112M, beating expectations by 12% and beating by 60bp on operating margin (margin improved 160bp to 15.8%).

Industrial Process

Industrial process revenue fell 10% in organic terms (to $228M), beating by 1%, as the company saw significant pressure in short-cycle (down 13%) and project (down 4%) due to weaker demand and project delays in verticals like chemicals and oil/gas (more on the refinery side). Segment profits fell 5%, beating by 5%, with margin up 90bp to 15.1% - a strong performance with a double-digit decline in revenue.

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor.Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds).

Analyst’s Disclosure: I am/we are long ITT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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