Vontier Stock: A Long Road Ahead (NYSE:VNT)

Vontier Corporation (NYSE:VNT) is a company that provide products and services in the mobility infrastructure industry. It has been struggling for some time, and is likely to continue to struggle to break out in the near future.

There are no visible catalysts that are a game changer for the company, and it appears it’s going to have to grow via a number of modest acquisitions going forward, and/or expand to other verticals to obtain consistent momentum, something it has lacked for some time.

It has dropped from its 52-week high of $32.315 on December 6, 2021 and bottomed out at $16.55 at the end of September 2022. It has slightly rebounded since then but looks like it’s going to continue to struggle to gain any traction as the company stands today.

In this article we’ll look at its latest earnings, and why it will take a lot of time before it finds sustainable, long-term growth.

Some of its numbers

Revenue in the third quarter was $788 million, up 2.54 percent from the $699.7 million in revenue in the third quarter of 2021. Product sales accounted for $707.7 million of the revenue in the quarter, with service sales coming in at $80.3 million.

Revenue from its Mobility Technology platform was down 3 percent in the third quarter, while sales in its aftermarket business was up by over 30 percent. Sales in it CNG business was up by double digits.

Its Diagnostic and Repair Technologies platform had core revenue climb by a modest 1.5 percent in the reporting period, with Matco up 3 percent.

With the acquisition of DRB in the third quarter of 2021, it bolstered revenue some, as it was up 30 percent in the quarter. If it grows to be a larger part of overall revenue, it could be one of the types of catalysts the company needs to sustainably grow.

For the first nine months of 2022 revenue was $2.31 billion, up from the $2.2 billion in the first nine months of 2021. Product sales in the first nine months of 2022 was $2.08 billion, up from the 2.01 billion in the first nine months of 2021. Sales of services was $232 million in the first nine months of 2022, compared to $195.4 million in the first nine months of 2021.

Net earnings in the third quarter were $50.1 million, or $0.32 per share, falling from the $127.3 million, or $0.75 per share year-over-year.

Cash and cash equivalents at the end of the third quarter was $121.7 million, down from $572.6 million at the end of calendar 2021, with long-term debt of $2.636 billion. The company also drew $50 million from its $750 million credit facility.

With revenue growth modest, net earnings declining, cash and cash equivalents shrinking, and total debt of over $2.6 billion, the performance of the company isn’t inspiring in any way.

Share price and performance

After looking at some of the important numbers from the third quarter, it’s worth measuring them against the share price movement of the company, which is somewhat aligned with it.

As mentioned earlier, the share price dropped to a 52-week low of $16.55 per share near the end of September, and has since attempted to sustainably break above the $19.50 per share mark, but has failed to so several times. Over the last couple of weeks it has traded a little under $19.00 per share to $19.50 per share, and is likely to fall under that with no strong catalysts to drive its share price up in the weeks and months ahead.

How it looks to me is the company is going to have to make a number of smaller acquisitions that have potential long-term revenue growth in order to drive the company out of its slow revenue growth and gain some momentum. Taking the risk of buying a larger asset that could move the needle in a bigger way would be very risky for the company in light of its debt load and high interest rates.

The challenge is, as with some of the parts of its businesses that make up the whole, is a number them, while continuing to grow, are doing so at an incremental pace. Until that changes, there’s not a lot to drive the company. And as mentioned, I think it would be risky to acquire a large asset under current economic conditions and the significant debt it carries.

Even if it were to drop further and provide a more attractive entry point, I don’t see the company outperforming in the near of mid-term future, with the current businesses it operates.

Conclusion

CEO Mark D. Morelli made the statement that its strategy is a “multi-year portfolio transformation,” and I completely agree with that. The company, in my opinion, is still in the early stages of that transformation and has a long way to go before it generates the type of revenue on a consistent basis across most of its businesses that will result in sustainable growth.

I think the company will have to make a lot of smaller acquisitions that will, together, over time, build a foundation that will be a springboard to more predictable growth.

If that’s the route it takes, the market isn’t likely to reward it in the near term, and its share price is likely to languish for a period of time before it finds support and rebounds to higher lows and higher highs.

VNT, in my opinion, is going to be a long, drawn-out play that will probably take several years to find its footing. It’s an interesting stock, but until it’s able to find the right product mix across its various verticals, it’s going to continue to struggle.

With little in the way of a significant catalyst that will have a strong impact on the performance of the company, I think it’s best to wait on VNT until it shows, by its actions, that it is a company that can deliver long-term growth.