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We expect industrial tool maker, Illinois Tool Works Inc. (ITW - Analyst Report) to beat expectations when it reports its second quarter 2013 financial results on Jul 23, 2013.

Why a Likely Positive Surprise?

Our proven model shows that Illinois Tool is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Illinois Tool has an earnings ESP (Read: Zacks Earnings ESP: A Better Method) of +1.84% for the second quarter 2013, which indicates the difference between the Most Accurate estimate of $1.11 and the Zacks Consensus Estimate of $1.09. This is a leading indicator of a likely positive earnings surprise for shares.

Zacks #3 Rank (Hold): Illinois Tool’s Zacks Rank #3 increases the predictive power of its ESP. The combination of its Zacks Rank and Earnings ESP makes us confident of a positive earnings surprise in the to-be-reported quarter.

Note that stocks with Zacks Ranks #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement

What is Driving the Better-Than-Expected Earnings?

Illinois Tool remains focused on its key long-term initiatives—Business Simplification, Portfolio Management and Strategic Sourcing—that are anticipated to drive shareholders value going forward. The reclassification of divested businesses in the first quarter 2013 and the strategic review of the Industrial Packaging segment are consistent with the company’s Portfolio Management initiative.

Also, rewards through dividend payments and share repurchases remain a priority for Illinois Tool. Operating margin is also anticipated to get a boost from the company’s cost saving initiatives and favorable price/cost.

The positive trend is seen in the trailing four-quarter average surprise of +0.88%.

Other Stocks to Consider

Illinois Tool is not the only firm looking up this earnings season. We also see likely earnings beats coming from these 3 industry peers:

Gardner Denver Inc. , Earnings ESP of +3.18% and Zacks #2 Rank (Buy)
Dover Corporation (DOV - Analyst Report), Earnings ESP of +0.78% and Zacks #3 Rank (Hold)
Danaher Corp. (DHR - Analyst Report), Earnings ESP of +1.18% and Zacks #3 Rank (Hold)

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