Industrial technology company Vontier Corporation (VNT) in Raleigh, N.C., manufactures, distributes, and sells technical equipment, components, software, and services, and focuses on offering mobility solutions worldwide. VNT reported double-digit earnings and top-line growth for 2021, driven by demand for its solutions, order growth, and backlog trends. VNT’s core revenue grew 7.4% year-over-year for its full year 2021, while its net revenue increased 10.6% year-over-year to $2.9 billion .
Given the company’s promising financial and solid growth potential, VNT looks undervalued at its current price level. The stock’s 7.37 forward non-GAAP P/E ratio is 60.3% lower than the 18.56 industry average. Furthermore, with inflation hitting a new 40-year high last month, betting on quality value stock VNT could be rewarding.
In addition, VNT’s continuing efforts to drive portfolio diversification to capitalize on the growing popularity of next-generation mobility and transportation solutions should position it to grow both organically and inorganically.
Here is what could shape VNT’s performance in the coming months:
Impressive Growth Potential
Analysts expect VNT’s EPS to increase 11.5% year-over-year to $0.68 in the next quarter, ending June 2022. Its consensus EPS estimates indicate a 3.2% increase in the current quarter, ending March 31, 2022, and an 8.3% increase in fiscal year 2022. Also, its EPS is expected to grow at 8.2% over the next five years. VNT has an impressive earnings surprise history; it surpassed the Street’s EPS estimates in each of the trailing four quarters.
The $764.34 million consensus revenue estimate for the next quarter indicates a 5.5% improvement year-over-year. Also, its revenue is estimated to increase 6.9% year-over-year to $3.2 billion in 2022.
Accelerated Share Repurchase
VNT entered a$250 million accelerated share repurchase (ASR) agreement with Citibank in February. Under the agreement, the company will acquire shares as part of its previously approved $500 million share repurchase authorization announced last year. The global manufacturing company believes the ASR reflects its strong business fundamentals and strong free cash flow as it repositions itself to lead in the energy transition and create shareholder value.
VNT’s 6.61x forward Price/Cash Flow ratio is 62.9% lower than the 17.81x industry average. And in terms of its forward EV/Sales, the company is currently trading at 1.8x, which is 43.7% lower than the 3.2x industry average. The stock’s 1.16x forward Price/Sales ratio compares favorably with the 3.10x industry average. Also, VNT’s 7.26x forward EV/EBITDA is 44.4% lower than the 13.05x industry average.
Solid Financial Performance
For its full year ended Dec.31 2021, VNT’s total sales grew 10.6% year-over-year to $2.99 billion. Its gross profit rose 12.2% from the prior-year period to $1.33 billion, while its operating profit rose 24.3% to $582.2 million. The company’s net earnings came in at $413 million, representing a 20.8% increase year over year. Also, its EPS amounted to $2.43 for the full year, up 20.2% from the same period last year. In addition, its cash and cash equivalents grew 50.5% year-over-year to $572.6 million over this period.
VNT’s 22.8% trailing-12-month EBITDA margin is 65.2% higher than the 13.8% industry average. The company’s trailing-12-month net income margin and ROE of 13.8% and 109%, respectively compare favorably with the industry averages. Also, its13.7% trailing-12-month levered free cash flow is 23.5% higher than the11.1% industry average.
POWR Ratings Reflect Promising Outlook
VNT has an overall B rating, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. VNT has a Value grade of B. The stock’s lower-than-industry valuation multiples are in sync with this grade.
In addition, it has a B grade for Quality. This justifies the company’s higher-than-industry EBITDA margin and net income margin.
Click here to see the additional POWR Ratings for VNT (Stability, Sentiment, Growth, and Momentum).
The stock is ranked #31 of 92 stocks in the Industrial – Equipment industry.
VNT’s ongoing portfolio transformation and continued revenue growth powered by the underlying demand for its mobility solutions should help the company witness compounding earnings and cash flow growth. In addition, as inflationary pressure is expected to persist, value stock VNT could be a wise bet now due to its strong cash flow and solid business fundamentals.
How Does Vontier Corporation (VNT) Stack Up Against its Peers?
While VNT has an overall POWR Rating of B, you might want to consider investing in the following Industrial – Equipment stocks with an A (Strong Buy) rating: Hurco Companies, Inc. (HURC), Preformed Line Products Company (PLPC), and Applied Industrial Technologies, Inc. (AIT).
Note that VNT is one of the few stocks handpicked by our Chief Value Strategist, Steve Reitmeister, currently in the POWR Value portfolio. Learn more here.
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VNT shares were trading at $23.18 per share on Monday morning, up $0.18 (+0.78%). Year-to-date, VNT has declined -24.49%, versus a -10.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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