ITT Earnings: Strong Quarter, Yet Our Already Bullish Long-Term View Remains Unchanged

Nothing in narrow-moat-rated ITT’s ITT first-quarter results materially alters our long-term point of view. Management raised the lower end of its adjusted EPS range by a dime, setting the new range between $4.65 and $4.95. We model above the midpoint of the guide with adjusted EPS of $4.87, meaning we moved up our prior projection by a quarter. We mostly pulled forward our estimates, and model at the top end of the organic revenue guide, but around the midpoint of the adjusted segment operating margin guide. We now value ITT at 21 times adjusted EPS, relatively in line with the rest of the U.S. multi-industry category.

During the first quarter, consolidated revenue rose about 10% year on year on both a reported and organic basis, while adjusted segment operating margins rose 270 basis points to 17.3%. In turn, this drove adjusted EPS of $1.17, up nearly 21% year on year. We’re pleased with results in the quarter, and we think that ITT is set up well through the balance of the year. In fact, though we forecast a slight stepdown in revenue, we think adjusted EPS will be remain relatively flat with the first quarter’s results. Said differently, we think most of ITT’s earnings will be back-half weighted.

More importantly, from a long-term perspective, we think ITT is well-positioned to deliver mid-single-digit growth through the cycle, and core incremental margins in the lower 30s. Consequently, ITT should join other stronger industrials in breaking past 20% segment operating margins. It should also grow adjusted EPS in the low-teens, helped in part by an extra point in revenue contribution from mergers and acquisitions.