Stock (Symbol) |
Illinois Tool Works (ITW) |
Stock Price |
$105 |
Sector |
| Food & Necessities |
Data is as of |
| May 2, 2016 |
Expected to Report |
| Jul 20 – Jul 25 |
Company Description |
 Illinois Tool Works Inc. (ITW) is a manufacturer of a range of industrial products and equipment. The Company’s operates in seven segments: Automotive OEM, Test & Measurement and Electronics, Food Equipment, Polymers & Fluids, Welding, Construction Products and Specialty Products. These operations serve end markets as automotive original equipment manufacturers/tiers, automotive aftermarket, general industrial, commercial food equipment and construction. It produces components and fasteners for automotive-related applications; equipment, consumables and related software; commercial food equipment, adhesives, sealants, lubrication and cutting fluids; arc welding equipment, consumables and accessories; construction fastening systems and truss products, and beverage packaging equipment and consumables. The Company operates approximately 90 divisions in 57 countries. Source: Thomson Financial |
Sharek’s Take |
 Illinois Tool Works (ITW) should see accelerated profit growth later in 2016 due to a weaker U.S. dollar. Almost half of ITW’s sales come from outside North America, and foreign currency translation trimmed ITW’s profit growth from 10% to 7% last qtr. That stinks because if ITW could grow 10% a year and pay a 2% dividend that could mean a 12% total return (if the P/E stays the same). The good news is the dollar has come down a bit and USD comparisons will get easier starting in the June 30th qtr (which is coming up). In fact management just upped next qtr’s estimates a bit. Analysts have profit growth estimates of 8%, 6%, 12% and 12% the next 4 qtrs. Management has a long-term program which focuses the company on what’s profitable, such as auto parts, food equipment and construction parts. This proving to be a success as as profit margins are improving. In its latest Annual Report ITW projected total annual returns of 12% to 14% per year through 2017 (9-10% increases in profits, 1-2% in share repurchases or acquisitions, and a 2% dividend). Now with the dollar weakened the company might be able to reach this goal. The only issue is the P/E is 19, which puts the stock around my Fair Value. Since the stock market low of February, ITW’s gone from $85 to 105 and now it’s not on sale. Still this a great conservative stock as Illinois Tool Works was founded more than 100 years ago, gets a top rating for safety, has grown its dividend each year since 1964, and management buys back billions in stock. |
One Year Chart |
 Such a huge move higher since the stock market low. Note the other low the stock hit last August when again the market was down. Now I think the stock’s gotten a bit ahead of itself. |
Fair Value |
 My Fair Value is 18x earnings which is $100 a share. With the stock at $105 it’s not on sale. It’s a pity too because with profits set to grow 12% later this year I think the stock is on sound footing. |
Bottom Line |
 Illinois Tool Works is a great stock for conservative accounts. It’s been paying dividends — and upping them — since the 1960s. With a better foreign exchange situation ITW might be able to return to double-digit profit growth later this year. But the economy isn’t growing fast so sales growth will likely still be slow. Also, the stock’s jumped a bunch here. I think we should wait for a better buying opportunity. Very long-term accounts should continue to hold ITW, I’ll look to buy if it corrects. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
