Stock (Symbol) |
Illinois Tool Works (ITW) |
Stock Price |
$165 |
Sector |
| Food & Necessities |
Data is as of |
| February 27, 2018 |
Expected to Report |
| Apr 23 |
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. Source: Thomson Financial |
Sharek’s Take |
 Illinois Tool Works (ITW) used to have an Estimated Long-Term Growth Rate of 8% a year. Now the company is growing profits in excess of 20% per year. Wow! Illinois Tool Works was founded more than 100 years ago. The company is a diversified industrial manufacturer that makes all sorts of stuff from baking ovens to car parts with 7 business segments: Automotive Original Equipment Manufacturing, Food & Equipment, Test & Measurement and Electronics, Specialty Products, Polymers & Fluids, Construction Products and lastly Welding. In 2012 management instituted a program to focus 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 has been a roaring success as profit margins expanded from 16% to 24% through last qtr. Illinois Tool Works gets a top rating for safety, and has grown its dividend each year since 1964. Management returned $1.9 billion to shareholders in 2017 and increased the qtrly dividend 20%. This is a great buy-and-hold stock for conservative investors. The Est. LTG just increased from 8% to 10% to 13% a year and the stock pays a 2% dividend yield. But for all this greatness, the stock comes with a premium price. ITW currently sells for 22x 2018 profit estimates, which is high. Thus, the stock is trading around my 2018 Fair Value. But ITW is deserving of a premium P/E. Illinois Tool Works is a good investment when the economy is rising, and with the U.S. dollar low, this stock should continue to be timely in the year ahead. The company just increased 2018 profit estimates $0.40, $0.35 of which is from tax reform and $0.05 from foreign currency rates. ITW’s tax rate is expected to decline from 29% to 25%-26%. |
One Year Chart |
 Wow, 22% profit growth last qtr. This beat estimates of 16%. Sales rose 7%. 2018’s profit estimate increased from $7.20 to $7.68 this qtr. Annual estimates have increased five straight qtrs. Qtrly estimates surged higher, and now analysts estimate profit growth of 20%, 18%, 6% and 12% the next 4 qtrs. The stock’s on a little dip here, but is still up big from a year-ago. |
Fair Value |
 My Fair Value is a rich 22x earnings, and the stock is worth it as profits are growing +20%. I could increase my Fair Value P/E but that wouldn’t be in line with historical averages. With the stock — and the stock market — up big the last couple of years it may be prudent to take a cautious stance. |
Bottom Line |
 Illinois Tool Works is a solid core holding for conservative investors, with a 13% Est LTG in addition to a 2% dividend that’s increased every year since 1964. Unfortunately, the stock has already gone on a tear higher, and looks a tad high in the ten-year chart. But with worldwide economic growth good and the US dollar low, profits are growing in excess of 20% a qtr and that should keep this stock trending higher. ITW ranks 25th in the Conservative Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 25 of 35 |
