ITT Inc. ITT has managed to impress investors with its recent winstreak, as earnings have trumped estimates in the four trailing quarters. The company expects to continue earnings momentum on the back of strong productivity, business streamlining and cost containment measures.
ITT’s performance has reflected well on share price, exhibiting investor optimism. The company’s shares have appreciated 35.8% in the last six months, against the industry’s average decline of 6.2%. We believe ITT, which enjoys a strong foothold in an expanding automotive market has several growth drivers working in its favor, in the quarters to come. Read on to find out the key drivers at the moment.
Factors at Play
ITT’s focus on business streamlining, cost controls and efficiency continues to prove beneficial to financial performance. The integration of its Interconnect Solutions and Control Technologies businesses into the Connect and Control Technologies segment is expected to enhance focus on target markets, streamline operations and leverage shared infrastructure as well as end markets. Its simplified operational framework will help unlock growth opportunities, as well as drive long-term growth in the global aerospace and industrial markets.
The company’s three-pronged strategy to drive growth through optimizing execution, effective capital deployment and market expansion is one of the company’s biggest strengths. The Motion Technologies continue to witness exceptional operational effectiveness that is proving conducive to operating income growth. Moreover, its Industrial Process has also been performing well, owing to growth in short-cycle pumps and aftermarket service and parts. This apart, the company’s intense restructuring actions, along with intensified operational focus are expected to generate gross productivity savings.
We are highly optimistic about the company’s market expansion strategies which are anticipated to act as key catalysts going forward. In the upcoming quarters, the company expects its rail and auto businesses to act as major growth drivers, fueled by an increase in acquisitions and growth in the aftermarket brake pad business. Further, the company’s diversified operations across key end markets, geographies and business cycles, reduces the company’s dependence on any single market, consequently playing a significant role in maintaining operational performance.
However, the company faces risks from uncertainty in the global macroeconomic environment, especially weakness in industrial markets. Also, pricing pressure on large projects and lesser petrochemical and mining project activity are anticipated to aggravate the decline in the petrochemical business in North America and China.
Moreover, sharp decline in oil and gas as well as chemical markets poses a concern for the company. Based on unfavorable oil price movements, the company anticipates decline in revenues of oil and gas segments, going forward. The company projects revenues to drop mainly due to project delays, lower capital expenditure on part of clients, high cost of projects and pricing pressures.
Considering growth drivers and the risks that it faces, we have a Zacks Rank #3 (Hold) on the company.
Stocks to Consider
Some better-ranked stocks worth considering are Leucadia National Corporation LUK, 3M Company MMM and Raven Industries, Inc. RAVN. While Leucadia National sports a Zacks Rank #1 (Strong Buy), 3M Company and Raven Industries carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Leucadia National has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 21.2%.
3M Company has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 2.5%.
Raven Industries has outpaced estimates thrice in the preceding four quarters, with an average earnings surprise of 25.8%.
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