(RTTNews) - Friday, FBR Capital Markets downgraded ITT Corp. (ITT: News ) shares to Market Perform from Outperform and lowered its price target to $57 from $63.

Analyst Deane Dray downgrade the stock to reflect his investment framework where he continues to favor companies with defensive early-cycle exposures for relative outperformance at this stage in the cycle. As the recovery gains traction, the analyst believes ITT's outsized defensive revenue mix, about 69% of revenues in defense and water, could cause its shares to continue to lag the peer group.

The analyst believes there is still some fallout from the whole radio-silent drama the company touched off last quarter. The analyst remains puzzled why ITT would have taken such an unsettling tact as to shut down all communications with the Street for more than a month on an issue that turned out to be relatively benign.

The analyst remains mindful that Crane Co. (CR) went through a similar exercise relatively uneventfully to extend its asbestos liability into a 10-year reserve, and Crane's annual asbestos liability worked out to be 10 times higher than ITT's liability on a percentage of FCF basis.
The analyst remains positive on the company's potential for earnings resiliency in 2010. The analyst's 2010 estimate is slightly above consensus, at $3.95 versus $3.94 consensus. The analyst is reducing his 12-month price target from $63 to $57, implying 11% upside.

The analyst believes this lower valuation now reflects the "valuation penalty" investors assign for the company's high defense exposure could be more permanent, given what now appears to be a longer-lasting shift in ITT's tilt toward defense.

Currently, ITT is down $0.42 or 0.82% and trading at $50.92.

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by RTT Staff Writer

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