Vontier Targets Mid-Single-Digit Organic Revenue Growth Through 2026

We are maintaining our $37 fair value estimate after reviewing narrow-moat-rated Vontier’s VNT 2023 investor day materials. While our long-term view of the company remains unchanged, we think the presentation did a good job highlighting how Vontier has positioned its portfolio to capture opportunities due to the energy transition, including solutions for electric vehicle charging network operators at Driivz, low-carbon fueling infrastructure at ANGI, and telematics solutions at Teletrac Navman.

Vontier announced a new segment reporting structure and starting with the first quarter of 2023 will report its results based on the following segments: mobility technologies (including retail solutions, DRB, Teletrac Navman, ANGI, and Driivz), repair solutions (Matco); environmental and fueling solutions (Gilbarco Veeder-Root); and other (Global Traffic Technologies and Hennessy, both classified as assets held for sale). Management pegs the revenue growth rate at low-single digits for environmental and fueling solutions, midsingle digits for repair solutions, and high-single digits for mobility technologies.

Vontier introduced long-term financial targets for 2023-2026 and aims to deliver organic revenue growth of 4%-6%, at least 150 basis points of cumulative adjusted operating margin expansion through 2026, and roughly 100% adjusted free cash flow conversion. The company also reiterated its full-year 2023 guidance and continues to anticipate core revenue to be down low- to mid-single digits, adjusted operating margin to be down 60-80 basis points, and adjusted EPS to be in the range of $2.73 to $2.83.

We are encouraged by Vontier’s portfolio transformation since its spin-off from Fortive in 2020, with recurring revenue up from around 20% to 30% and noninternal combustion engine revenue up from roughly 30% to 45%. By 2028, management aims to boost recurring revenue to 40% and non-ICE revenue to 70%, which will be fueled by growth in the mobility technologies segment.