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We issued an updated research report on Illinois Tool Works Inc. (ITW - Free Report) on Dec 5, 2016. The company manufactures highly engineered products and specialty systems. It currently has a market capitalization of approximately $44 billion.
Year to date, Illinois Tool Works’ shares recorded an average return of 36.1%, compared with the return of 22.5% by the Zacks categorized Machinery General Industrial market.
We believe that Illinois Tool Works is well positioned to reap benefits from its organic and inorganic growth tactics, its long-term Enterprise Strategy and sound capital allocation schemes in the long term. Over the long term, it anticipates spending nearly 25−30% of its operating cash flow on internal investments, 30−35% on dividend payments and 40−45% on external investments including share buybacks and acquisitions.
Recently, Illinois Tool Works communicated that it targets organic revenue growth of 200 basis points (bps) above market, an approximate operating margin of 25% (previous expectation was 23%), and return on invested capital of above 20% by the end of 2018. Also, the company provided a favorable outlook for 2017, targeting earnings to come within $6.00−$6.20 per share range, representing 9% year-over-year growth at mid point. Organic revenue growth is expected to be 1.5−3.5%, while total revenue will likely lie within $13.8−$14.1 billion range. Operating margin is expected to exceed 23.5%, driven by 100 bps contribution from Illinois Tool Works’ enterprise initiatives. Full year free cash flow is anticipated to be 100% of net income and share repurchase will likely be roughly $1 billion.
Despite the solid near- and long-term growth potential, Illinois Tool Works is exposed to risks arising from near-term headwinds including unfavorable movements in foreign currencies, geopolitical issues, stiff industry rivalry, volatilities in input price & supply and difficulties or delays in research and development or production and services.
Also, end markets served by Illinois Tool Works are highly susceptible to global economic conditions as well as level of industrial activities in the U.S. Also, a rise in the company’s long-term debt will increase its financial obligations and limit profitability. Exiting the third quarter, Illinois Tool Works’ long-term debt was $6.3 billion.
Illinois Tool Works currently carries a Zacks Rank #3 (Hold). Over the last 60 days, the Zacks Consensus Estimate for the company increased 0.2% to $5.63 per share for 2016 while decreased 0.2% to $6.13 per share for 2017.
Some better-ranked stocks in the machinery industry include Enersys Inc. (ENS - Free Report) , II-VI Incorporated and Applied Industrial Technologies, Inc. (AIT - Free Report) . While Enersys and II-VI Incorporated sport a Zacks Rank #1 (Strong Buy), Applied Industrial Technologies carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Enersys Inc’s earnings estimates for fiscal 2017 improved over the last 60 days. It has an average positive earnings surprise of 3.01% for the trailing four quarters.
II-VI Incorporated reported better-than-expected results in the last four quarters, with a positive average earnings surprise of 39.80%. Also, bottom-line expectations for fiscal 2017 and fiscal 2018 have improved over the past 60 days.
Applied Industrial Technologies’ earnings estimates for fiscal 2017 and fiscal 2018 have been revised upward over the last 60 days. Average earnings surprise for the last four quarters is a positive 4.93%.
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Illinois Tool Works' Growth Potential Solid, Runs Risks
We issued an updated research report on Illinois Tool Works Inc. (ITW - Free Report) on Dec 5, 2016. The company manufactures highly engineered products and specialty systems. It currently has a market capitalization of approximately $44 billion.
Year to date, Illinois Tool Works’ shares recorded an average return of 36.1%, compared with the return of 22.5% by the Zacks categorized Machinery General Industrial market.
We believe that Illinois Tool Works is well positioned to reap benefits from its organic and inorganic growth tactics, its long-term Enterprise Strategy and sound capital allocation schemes in the long term. Over the long term, it anticipates spending nearly 25−30% of its operating cash flow on internal investments, 30−35% on dividend payments and 40−45% on external investments including share buybacks and acquisitions.
Recently, Illinois Tool Works communicated that it targets organic revenue growth of 200 basis points (bps) above market, an approximate operating margin of 25% (previous expectation was 23%), and return on invested capital of above 20% by the end of 2018. Also, the company provided a favorable outlook for 2017, targeting earnings to come within $6.00−$6.20 per share range, representing 9% year-over-year growth at mid point. Organic revenue growth is expected to be 1.5−3.5%, while total revenue will likely lie within $13.8−$14.1 billion range. Operating margin is expected to exceed 23.5%, driven by 100 bps contribution from Illinois Tool Works’ enterprise initiatives. Full year free cash flow is anticipated to be 100% of net income and share repurchase will likely be roughly $1 billion.
Despite the solid near- and long-term growth potential, Illinois Tool Works is exposed to risks arising from near-term headwinds including unfavorable movements in foreign currencies, geopolitical issues, stiff industry rivalry, volatilities in input price & supply and difficulties or delays in research and development or production and services.
Also, end markets served by Illinois Tool Works are highly susceptible to global economic conditions as well as level of industrial activities in the U.S. Also, a rise in the company’s long-term debt will increase its financial obligations and limit profitability. Exiting the third quarter, Illinois Tool Works’ long-term debt was $6.3 billion.
Illinois Tool Works currently carries a Zacks Rank #3 (Hold). Over the last 60 days, the Zacks Consensus Estimate for the company increased 0.2% to $5.63 per share for 2016 while decreased 0.2% to $6.13 per share for 2017.
Some better-ranked stocks in the machinery industry include Enersys Inc. (ENS - Free Report) , II-VI Incorporated and Applied Industrial Technologies, Inc. (AIT - Free Report) . While Enersys and II-VI Incorporated sport a Zacks Rank #1 (Strong Buy), Applied Industrial Technologies carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Enersys Inc’s earnings estimates for fiscal 2017 improved over the last 60 days. It has an average positive earnings surprise of 3.01% for the trailing four quarters.
II-VI Incorporated reported better-than-expected results in the last four quarters, with a positive average earnings surprise of 39.80%. Also, bottom-line expectations for fiscal 2017 and fiscal 2018 have improved over the past 60 days.
Applied Industrial Technologies’ earnings estimates for fiscal 2017 and fiscal 2018 have been revised upward over the last 60 days. Average earnings surprise for the last four quarters is a positive 4.93%.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>