Vontier Earnings: Double-Digit Core Revenue Growth Excluding EMV Sunset Leads to Guidance Raise

We are maintaining our $37 fair value estimate for narrow-moat-rated Vontier VNT, as nothing in the firm’s first-quarter results materially alters our long-term thesis. We continue to view the stock as undervalued, currently trading at a roughly 25% discount to our fair value estimate.

Vontier increased first-quarter core revenue by 3.9% from the same period last year. Mobility technologies core sales were up 12%, fueled by over 20% growth in car wash technologies and over 30% growth in alternative energy solutions. Repair solutions core sales increased 10.5% thanks to a continued easing of supply chain constraints, which allowed for faster backlog conversion. Lastly, environmental and fueling solutions core sales declined 2.2% due to the ongoing sunset of sales related to the EMV payment system. Excluding the EMV headwind, Vontier increased first-quarter baseline core revenue by 11% year over year. Adjusted operating margin compressed 100 basis points from the prior-year period, but baseline margin excluding the EMV impact expanded 80 basis points.

Management raised its full-year guidance and now anticipates core revenue to be down by low to mid-single digits (down mid-single digits previously) and adjusted EPS to be $2.77-$2.87 ($2.73-$2.83 previously), which bakes in a roughly $300 million headwind due to the sunset of EMV-related sales. In April, Vontier completed the divestment of Global Traffic Technologies for $107 million, and the guidance excludes a roughly $0.05 EPS contribution from GTT. Vontier used $50 million of the proceeds from the GTT divestment to repay debt. Management said on the earnings call that it anticipates deploying a portion of the remaining proceeds into share repurchases, which we would consider to be a good use of capital, given our view that Vontier’s stock is undervalued.