Can ITT Maintain Its Impressive Momentum Despite Risks?

ITT Inc. (NYSE:ITT) has managed to impress investors with its recent earnings streak, with the bottom line surpassing the Zacks Consensus Estimates in the trailing four quarters. We expect the company to sustain earnings momentum on the back of expanding automotive market, strong productivity and business streamlining measures.

The company’s strong performance is also reflected in its share price trend, which reflects investors’ optimism about its growth prospects. The stock has rallied 10.4% in the last six months, against the industry’s decline of 13.2%.

Considering this backdrop, let’s delve deeper to find out the key factors aiding the stock at the moment.

Factors to Consider

ITT’s diversified operations across key end markets, geographies and business cycles are one of its biggest strengths, which help in offsetting weakness in a single market. The company’s three-pronged strategy through optimizing execution, effective capital deployment and market expansion keeps the company’s operational performance steady.

Meanwhile, the Motion Technologies segment continues to witness exceptional operational effectiveness, which drives operating income growth. Also, the Industrial Process segment has been performing well backed by growth in short-cycle pumps and aftermarket service and parts.

Moreover, the company’s focus on business streamlining, cost controls and efficiency continues to bolster financial performance. For instance, its recent shuffling of its segments will enhance focus on target markets, streamline operations and leverage shared infrastructure and end markets. Also, its simplified operational framework will unlock growth opportunities and drive long-term growth in the global aerospace as well as industrial markets.

We are optimistic about ITT’s market expansion strategies and expanding global automotive growth in North America, which are expected to act as key catalysts. Further, the company expects its rail and auto businesses to drive growth, fuelled by recent acquisitions and improvement in the aftermarket brake pad business. This apart, in terms of effective capital deployment strategies, the company’s plans to embark on major organic investments will widen its global reach and capabilities as well as drive organic growth.

Despite the positives, the company faces risks from uncertainty in the global macro-economic environment, especially weak industrial markets. Pricing pressure on large projects and lower petrochemical and mining project activity persistently aggravate the decline in petrochemical business in North America and China.

Moreover, huge decline in oil and gas as well as chemical markets poses a risk for the company. ITT anticipates decline in revenues of oil and gas segments, thanks to unfavorable oil price movements. Further, strained growth in the Connect and Control Technologies segment due to decline in energy absorption projects as well as weak demand for commercial aerospace components are concerns.

Considering such catalysts and risks, we have a Zacks Rank #3 (Hold) on the company.

Stocks to Consider

A few better-ranked stocks worth considering are Raven Industries, Inc. (NASDAQ:RAVN) , Leucadia National Corporation (NYSE:LUK) and 3M Company (NYSE:MMM) . While Raven Industries sports a Zacks Rank #1 (Strong Buy), Leucadia National and 3M Company carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Raven Industries has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 20.2%.

Leucadia National has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 6.6%.

3M Company has outpaced estimates thrice in the preceding four quarters, with an average earnings surprise of 3.2%.

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