Danaher's Spun-Off Company Veralto Is "Next High-Quality Serial Compounder" - Analyst

BMO Capital Markets analyst John P. McNulty initiated coverage on Veralto Corporation VLTO at an Outperform rating with a price target of $97.

The analyst says the company is poised for strong EPS growth in the next 2-3 years, led by recovery in its two secular growth businesses- Water Quality and Product Quality & Innovation. 

VLTO has high-margin/return businesses, a healthy balance sheet, and significant FCF, enabling it to use M&A to supplement double-digit EPS growth, writes the analyst.

Overall, the analyst sees Veralto as the next “high-quality serial compounder” in the chemicals/Industrial sector.

McNulty estimates revenue and EPS of $5.10 billion and $3.35 (vs. $3.27 est.) in FY24, $5.374 billion and $3.80 (street view: $3.54) in FY25 and $5.651 billion and $4.30 (vs. consensus: $3.82) in FY26.

Notably, Veralto separated from its former parent, Danaher Corp DHR, and began trading on the New York Stock Exchange in October 2023.

Veralto deals in essential technology solutions and is bolstered by the organization’s use of the Veralto Enterprise System (VES), a derivative of the Danaher Business System (DBS).

Earlier this month, Veralto reported fourth-quarter adjusted EPS of $0.87, beating the consensus of $0.81 and sales of $1.29 billion, exceeding the street view of $1.25 billion.

The company anticipates first-quarter FY24 non-GAAP core sales to be approximately flat Y/Y and adjusted EPS of $0.73-$0.78 (vs. current street view of $0.76).

Also, Veralto expects 2024 non-GAAP core sales to grow low-single digits and adjusted EPS of $3.20-$3.30 (estimate $3.28).

Price Action: VLTO shares are trading higher by 1.25% at $87.39 on the last check Tuesday.