ITT Corp. (NYSE:ITT) through its long history has dabbled in everything from hotels and insurance to more recently water management and industrial products. But potential headwinds in its defense business, grown via acquisitions over the past decade, are pushing the one-time sprawling conglomerate to split into more focused standalone companies.

White Plains, N.Y.-based ITT said Wednesday it intends to break into three entities before year's end, separating its water and defense units from its motion and control business. CEO Steve Loranger said the split follows six months of internal deliberations about the future of ITT, and should create companies "more nimble and able to build stronger, more intimate customer relationships."

Analysts who follow the company say that the split is being driven in large part by the desire to separate the high-flying water unit from defense, which had been a stalwart inside ITT but has recently become a drag on the company's valuation.

ITT acquired a substantial defense business in 2007 with its $1.7 billion deal for EDO Corp., and the unit -- which supplies night-vision goggles, radios and technology to troops in Iraq and Afghanistan -- is projected to account for about half of the company's estimated $11.5 billion in 2011 sales. But talk of government budget cuts and expected military troop reductions have clouded future earnings projections.

ITT has tried to diversify its defense business to serve the civil aviation market and nondefense government sectors, but "investors have become increasingly concerned about the earnings headwind from impending U.S. defense budget cuts which was likely to have depressed ITT's earnings growth potential for the foreseeable future," Deutsche Bank AG (NYSE:DB) analyst Nigel Coe said in a note Wednesday.

ITT before the announcement traded at a multiple of about 6 times Ebitda, in line with other defense companies but well below the 9.5 times Ebitda multiple that analysts such as Wedbush Securities Inc.'s David L. Rose believe water would trade at on its own.

Growth in those industrial businesses should be easier after they are freed from the uncertainty surrounding defense. The defense unit, meanwhile, seems likely to get caught up in the flurry of consolidation among Pentagon contractors in anticipation of cuts, either as a buyer or a seller.

Harold Geneen, who used more than 350 acquisitions over a two-decade period ending in the late 1970s to build ITT into a modern conglomerate, is quoted as saying "words are words, promises are promises, but only performance is reality." The reality for ITT today is its units are better off on their own.