Stock (Symbol) |
Illinois Tool Works (ITW) |
Stock Price |
$120 |
Sector |
| Food & Necessities |
Data is as of |
| August 22, 2016 |
Expected to Report |
| Oct 19 – 24 |
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) has shot up to a new all-time high, and that’s a good sign for the economy, as this is an industrial manufacturer. ITW has seven business segments:
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. It’s a great conservative stock. Management has a long-term program which focuses the company on what’s profitable, such as auto parts, food equipment and construction parts. So it sold off divisions of the business that it couldn’t raise prices or profit margins in. This proving to be a success as profit margins are improving — that’s a big reason for the stock’s surge. ITW has gone from $85 to $120 in a year, even though profits have grown an average of just 9% the last 4 qtrs. To me that means investors see strength in the economy. The only negative is ITW is a little high right now, thus I’m waiting for a lower entry point.
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One Year Chart |
 Wow, what a move higher. And it was a hard to anticipate as the numbers aren’t that great. Last qtr the company grew profits 12% on 0% sales growth. But investors were impressed with better profit margins. The company has also beaten the street by a little the past 4 qtrs. Management bumped up Annual Profit Estimates for 2016, which rose from $5.53 to $5.63. Qtrly profit growth is expected to be 7%, 12%, 12% and 9% the next 4 qtrs — that’s good but not great. I don’t understand how this stock got this 21 P/E. |
Fair Value |
 My Fair Value is 18x earnings which is $101 a share this year and $110 next year. Note the stock had a P/E as high of 20 twice during the last decade and both times that was when profits fell temporarily. So this is really a high point for ITW’s valuation. |
Bottom Line |
 Illinois Tool Works is a great stock for conservative accounts, with a 8% Est LTG in addition to a 2% yield. Investors have been impressed the company got rid of commodity type businesses, even though this has hurt sales in the short run. To me this chart is a clear indication the economy is doing quite well. I like this stock a lot, but feel it just went parabolic and is now overvalued. Note Yearly Profit Growth has averaged 6% a year yet the stock’s gone up 10% a year — those two numbers should be similar. I’m on the sidelines and will look to get in if ITW corrects. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
