Business Momentum And Expanding Markets Will Drive Earnings And Margin Gains Ahead

Key Takeaways

• Continued demand in energy, water, and industrial sectors, combined with innovation and service expansion, positions ITT for sustained revenue and margin growth.
  
• Strategic acquisitions and operational enhancements drive competitive advantage, recurring earnings, and strong cash flow prospects through industry cycles.
  
• Growing reliance on project work, competitive pressures, acquisition risks, and global supply chain challenges threaten ITT's earnings stability and long-term margin performance.

Catalysts

Manufactures and sells engineered critical components and customized technology solutions for the transportation, industrial, and energy markets.

• Strong, sustained order growth and backlog-driven by demand in energy (including decarbonization projects), water solutions, and industrial upgrades-supports the expectation for ongoing revenue acceleration in coming years, as heightened global investment in green infrastructure and efficiency persists.
  
• Market share gains and pricing power in high-growth segments like aerospace/defense, connectors, and fluid technologies-enabled by execution, innovation, and differentiation-suggest increased net margins and revenue outperformance versus peers as urbanization and manufacturing expansion continue globally.
  
• Expansion of high-margin aftermarket and services business, along with new technologies (geopolymer brake pads, advanced fuel pumps, digital monitoring), positions ITT to benefit from industry digitalization and energy efficiency standards, supporting margin expansion and stable, recurring earnings streams.
  
• Recent and future bolt-on acquisitions (e.g., Svanehøj, kSARIA, Habonim) are exceeding targets and integrating quickly, forecasted to deliver significant incremental revenue and annual margin improvement, accelerating both top line and EPS growth.
  
• Operational improvements-such as automation, productivity initiatives, and strategic pricing-combined with visibility from a $2B backlog and resilient end markets, are expected to drive further gains in operating margins, free cash flow conversion, and EPS over the medium and long term.

ITT Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ITT's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.0% today to 14.6% in 3 years time.
• Analysts expect earnings to reach $651.2 million (and earnings per share of $7.81) by about September 2028, up from $516.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.7x on those 2028 earnings, down from 26.0x today. This future PE is about the same as the current PE for the US Machinery industry at 24.7x.
• Analysts expect the number of shares outstanding to decline by 4.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.12%, as per the Simply Wall St company report.

ITT Future Earnings Per Share Growth

Risks

• ITT's increasing reliance on project-based revenue, now comprising 58% of its industrial process backlog versus 40% two years ago, creates less short-cycle visibility and introduces risks of project delays, pushouts, or cancellations-potentially causing revenue and earnings volatility if market conditions soften.
  
• The company's above-market growth in highly competitive end-markets like energy (oil & gas) and automotive is attributed largely to market share gains and performance differentiation, but aggressive competitor pricing and the cyclicality of these markets could pressure ITT's margins and lead to unpredictable revenue streams.
  
• Recent acquisitions (Svanehøj, kSARIA) are currently outperforming expectations, but increased M&A activity and 'ramping' of associated corporate costs raise integration, execution, and dilution risks that could compress margins and impact future earnings if synergies underdeliver or business cycles reverse.
  
• Margin improvement is currently offsetting headwinds from unfavorable mix, FX impacts, and rising M&A-related costs, yet a reversal in pricing power, commodity input inflation, or inability to sustain strategic pricing (especially in CCT) may cause net margin compression, impacting long-term EPS growth.
  
• ITT is exposed to ongoing geopolitical and supply chain risks, including tariffs and import dependencies (especially from Asia and Europe), which-while currently mitigated by pricing-could escalate and disrupt operations, inflate costs, or erode global competitiveness, negatively impacting both revenues and margins over time.

Valuation

• The analysts have a consensus price target of $187.083 for ITT based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $202.0, and the most bearish reporting a price target of just $141.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.4 billion, earnings will come to $651.2 million, and it would be trading on a PE ratio of 24.7x, assuming you use a discount rate of 8.1%.
• Given the current share price of $171.93, the analyst price target of $187.08 is 8.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.