On Aug 22, we maintained our Neutral recommendation on
). We appreciate the company's better-than-expected earnings
performance in the second quarter of 2013.
Moreover, the company is expected to benefit from the growth
in the oil and gas, chemical and industrial markets, share gains
in the global automotive market, the impact of the Bornemann
Pumps acquisition and emerging market growth. However, this
favorable growth is expected to be partially offset by weakness
in the mining and defense end markets.
Why the Reiteration?
On Aug 1, ITT reported second-quarter 2013 earnings per share
of 51 cents, which improved 15% year over year and outpaced the
Zacks Consensus Estimate of 45 cents by 11.8%. Earnings were up
15% year over year. Profits during the quarter were driven by
stronger operational performance, improved volumes and a
Total revenue in the quarter surged 9.2% to $609.2 million
from $557.9 million in the prior-year period. Organic revenue for
the quarter grew 2%. Revenue growth during the quarter was driven
by a 13% increase in Western Europe and a 12% increase in
emerging markets. In addition, gains in key global end-markets
with 19% growth in energy and 12% growth in the global automotive
breakpad market coupled with a solid performance from the
recently-acquired Bornemann Pumps business contributed to the
top-line growth. These were somewhat offset by a 35% decline in
Following the release of the second-quarter results, the Zacks
Consensus Estimate for fiscal 2013 increased 2.6% to $1.94 per
share. Moreover, the Zacks Consensus Estimate for fiscal 2014
rose 2.3% to $2.24 per share.
The emerging markets have been a major revenue driver for the
company. This region represents approximately 30% of the total
consolidated revenue for the company. ITT has reported
significant growth in automotive in China, chemical in the Middle
East and mining in Latin America, among others. In addition, the
aftermarket solutions are also very profitable for ITT. The
company has been working on the expansion of its aftermarket
service and in fiscal 2012 it contributed about 30% to the top
However, the pump and valve markets of the Industrial Process
segment are highly competitive. Price, delivery times and on-time
delivery performance, brand recognition and reputation, perceived
quality, breadth of product offerings, commercial terms,
technical support, and localization are primarily the driving
factors behind consumers' purchasing decision. Pricing is
typically very competitive for large projects because of the
increased potential of aftermarket opportunities for the original
Other Stocks to Look For
Currently, ITT retains a Zacks Rank #2 (Buy).
Some other stocks that are performing well in the industry
where ITT operates include
Michael Baker Corp
AO Smith Corp.
). Michael Baker carries a Zacks Rank #1 (Strong Buy), while VSE
and AO Smith carry a Zacks Rank #2 (Buy).
SMITH (AO) CORP (AOS): Free Stock Analysis
BAKER (MICHAEL) (BKR): Free Stock Analysis
ITT CORP (ITT): Free Stock Analysis Report
VSE CORP (VSEC): Free Stock Analysis Report
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