Vontier Corp (NYSE: VNT): A Bull Case Thesis

We came across a bull case thesis for Vontier Corp (VNT) posted on ValueInvestorsClub by sancho. In this article we will summarize that thesis. You can read the complete article here.

We pay attention to stock analysis posted on VIC because their analysts spend a lot of time and effort doing their research.

VNT is made up of the following five different companies with worldwide presence:

• Gilbarco Veeder Root (GVR)– Global leader in gas stations equipment like fuel dispensers, payment systems, tank monitoring systems, EV chargers, and services like cloud services.
• Matco– Manufactures and distributes vehicle repair tools, vehicle diagnostics software.
• TeletracNavman– Provides global SaaS telematics including fleet management, vehicle tracking and workflow software.
• Hennessy– Manufactures after sales wheel-service equipment.
• GTT– Manufactures smart traffic control systems.

Recently spun-off from Fortive (FTV), VNT is has been under pressure amid the Street’s apprehensions about its long-term growth prospects. Additionally, FTV’s contemplated selling of 33.5 million shares of VNT over the next 12 months is further dragging the stock, albeit temporarily. Following the footsteps of its parent group Danaher, VNT is expected to use its steady free cash flow to acquire synergized assets. A sum of $1.5 billion has been earmarked for M&A over the next few years.

GVR: A regulation requiring gas retailers to be EMV (Europay Mastercard & Visa)-compliant is pending implementation in 2021. GVR is geared for the enormous opportunities after which the business will focus on the growth in developing markets. For instance, GVR is the largest player in India’s gas station business, which is presently growing her station count at 100%. The rollout of EMV should unleash a plethora of opportunities in this space backed by industry tail winds.

Matco: There is under penetration of 30% of its franchises in North America, leaving plenty of room for growth.

TeletracNavman: The SaaS company is poised for return to growth with its TN360 platform after several operational challenges and resume the continuation of its high margin recurring revenue growth.

In the industrial capital goods sector, VNT is trading at the lowest P/E multiple of 11.1x and FCF multiple of 10.5x vs the peer group average of 24x and 24.6x respectively.  The company also has 43% gross margin vs group average of 39%, EBITDA margin of 23.5%  vs group average of 20.5%.

Analyst’s EPS estimate of $2.55 for FY2021 translates into a conservative 16x P/E giving a target price of $41.

The discount to its intrinsic value makes VNT an attractive value bet.