Illinois Tool Works: Great Company, Expensive Stock
Tips E-03: A 1-minute summary of my fundamental analysis of Illinois Tool Works Inc. (NYSE: ITW)
Investment Thesis
ITW is a high-quality compounder with strong profitability, but current valuations leave little margin of safety. Its lean cost structure, consistent cash generation, and shareholder-friendly capital returns support long-term value creation.
Main Business
ITW is a diversified global manufacturer operating 86 divisions across seven segments with a balanced cyclical/growth mix. Its decentralized, entrepreneurial model and “80/20” focus prioritize the most profitable customers and products. The US remains its largest market at nearly 50% of revenues.
Growth
Revenue growth has been modest, but EPS doubled from 2015 to 2024 mainly via share buybacks. Much of PAT growth stems from post-2021 performance and operating leverage.
Profitability
Profit growth was driven more by margin discipline and operating leverage than strong top-line gains. Returns on capital and ROE are well above peers, though heavily influenced by equity shrinkage from buybacks
Financial Strength
ITW is financially sound with strong cash flows and low reinvestment needs, despite a high reported debt-to-equity ratio. From 2015–2024, operating cash flows of $ 25 B exceeded cumulative profits, funding capex, acquisitions, and significant buybacks.
Peer Performance
Relative to peers, ITW’s returns and EPS growth look superior, but mainly due to financial engineering. Peers delivered lower revenue and profit growth, while ITW’s ROE and EPS benefited disproportionately from aggressive share repurchases.
Valuation
At $ 231 per share (20 April 2025) versus an intrinsic value of $215, ITW appears fully priced with no margin of safety.
For more insights and valuation details, refer to original article on Seeking Alpha “Illinois Tool Works Returns Outpace Its Peers - But Is It All In The Price?”
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Disclaimer & DisclosureI am not an investment adviser, security analyst, or stockbroker. The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies. Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them.
The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such.
I may have equity interests in some of the companies featured.
This blog is reader-supported. When you buy through links in the post, the blog will earn a small commission. The payment comes from the retailer and not from you.
Disclaimer & Disclosure
I am not an investment adviser, security analyst, or stockbroker. The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies. Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them.
The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such.
I may have equity interests in some of the companies featured.
This blog is reader-supported. When you buy through links in the post, the blog will earn a small commission. The payment comes from the retailer and not from you.
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