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ITT (ITT) Up 19.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for ITT (ITT). Shares have added about 19.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ITT due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

ITT Q3 Earnings and Revenues Beat Estimates, Decline Y/Y

ITT reported better-than-expected results in third-quarter 2020, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.
 
In the quarter, the company pulled off a positive earnings surprise of 15.5%. Quarterly adjusted earnings were 82 cents per share, outpacing the Zacks Consensus Estimate of 71 cents. However, the bottom line declined 15.5% from the year-ago figure.

Revenues of $591.2 million were down 17% year over year. Also, revenues fell 18% on an organic basis. However, the top line surpassed the consensus mark of $589 million by 0.4%.

Segmental Breakup

Third-quarter revenues of Industrial Process were $194.1 million, down 19% year over year. Organic sales declined 19%, owing to lower revenues from chemical and oil and gas pump projects and weakness across the short-cycle business.

Quarterly revenues of Motion Technologies declined 11% year over year to $271.8 million. Organic sales decreased 13%, mainly due to lower Friction sales in Europe on account of soft demand.

Connect & Control Technologies generated $125.9 million revenues, down 25% year over year. Organic sales fell 26%, owing to weakness across aerospace and defense end markets amid the coronavirus outbreak.

Costs/Margins

Cost of sales in the third quarter was $400.6 million, down 16.6% year over year. Sales and marketing expenses were $33.4 million compared with $41.6 million in the year-ago quarter.

Gross profit decreased 17.6% on a year-over-year basis to $190.6 million. Gross profit margin was 32.2%, down 30 basis points.

Balance Sheet/Cash Flow

Exiting the third quarter, ITT had cash and cash equivalents of $782.3 million, up from $612.1 million as of Dec 31, 2019. Commercial paper and current maturities of long-term debt were $118.7 million compared with $86.5 million at the end of 2019.

In the first nine months of 2020, the company generated $318.1 million in cash from operating activities, higher than $221.7 million recorded in the year-ago period. Capital expenditure totaled $47.6 million, declining from $69.3 million spent in the year-ago period.

Guidance

On uncertainties regarding the impacts of the coronavirus outbreak on financial and operating results, ITT has not provided its earnings and revenues guidance for 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 22.7% due to these changes.

VGM Scores

At this time, ITT has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise ITT has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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