Conglomerate companies are currently plagued with several supply-side challenges, including material-price inflation and soaring freight charges. Nevertheless, we believe investors should not completely shy away from these stocks in favor of retaining the core-business focused companies. Of late, domestic business prospects of these multi-sector companies have been largely buoyed by the expansionary fiscal measures rolled out by the Trump administration. Moreover, we notice that some of these companies are taking bold restructuring moves, divesting non-core businesses and making acquisitions to endure the jittery market conditions.
ITT Inc. ITT is one such conglomerate stock that sailed through the market doldrums in 2018 and is likely to continue its winning trend in the New Year as well. This stock currently carries a Zacks Rank #2 (Buy) and has had positive earnings estimate revisions for both 2018 and 2019, over the past 60-day period.
Let’s dig into the fundamental factors favoring the stock.
Why Should You Pick the Stock?
Profitability: ITT pulled off a positive average earnings surprise of 5.72% in the past four quarters. The company expects that commercial excellence, increased productivity, lower tax expenses and stellar sales volumes will boost its profitability in the upcoming quarters. Notably, ITT currently anticipates earnings of $3.13-$3.15 per share for 2018, as against the previous view of $3.05-$3.15 per share. The mid-point of ITT’s latest earnings view stands at $3.14 per share, higher than the previously-viewed earnings mid-point of $3.10 per share.
Per our estimates, the company’s year-over-year earnings growth is currently pinned at 21.6% and 13.9% for 2018 and 2019, respectively. Over the past 60 days, the Zacks Consensus Estimate for the company’s earnings has been revised upward 0.3% to $3.15 and 0.6% to $3.59 for 2018 and 2019, respectively. The northward estimate movements reflect analysts’ upbeat sentiments for the stock.
Top-Line Prospects: ITT believes increased orders from the chemical and general industrial businesses, sturdier demand for its specialized connectors, and growth in the company’s worldwide automotive friction orders will bolster its revenues in the quarters ahead. In sync with this, the company predicts to generate organic revenue growth of 4-5% in 2018, higher than the previous view of 3-5%. Per our estimates, the company’s year-over-year revenue growth is currently pegged at 7% and 4.8% for 2018 and 2019, respectively.
Highly Innovative: ITT intends to become more competent on the back of innovation investments. The company’s recently-rolled out innovative products like i-ALERT performance sensors and upgraded ITT Smart Pad have become widely popular in the market. Also, recent investments made to enhance the production capabilities and technology of rotorcraft will likely reap benefits.
Beneficial to Shareowners: ITT intends to augment its shareholders’ remuneration over the long term. In November 2018, the company announced an incremental share-repurchasing move of up to $25 million. ITT stated that it would buy back these shares with the cash proceeds secured from the spin-off of a former Connector operating location. Excluding this repurchase announcement, the company’s gross discretionary repurchases stand at $75 million in the first nine months of 2018.
Price Performance: Over the past two years, ITT’s stock has rallied 26.7%, as against the 28.6% loss recorded by the sector and 9.6% gain yielded by the S&P 500 Group.
Other Stocks to Consider
Some other top-ranked stocks that warrant a look are listed below:
Carlisle Companies Incorporated CSL carries a Zacks Rank #2. The company pulled off a positive average earnings surprise of 11.90% in the past four quarters. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Federal Signal Corporation FSS holds a Zacks Rank of 2. The company generated a positive average earnings surprise of 21.18% in the trailing four quarters.
Applied Industrial Technologies, Inc. AIT also carries a Zacks Rank of 2. The company delivered a positive average earnings surprise of 11.67% in the preceding four quarters.
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