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Illinois Tool (ITW) Up 8% in a Year: Will the Uptrend Continue?
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Shares of Illinois Tool Works (ITW - Free Report) have gained 8.4% in a year primarily due to strength across most of its businesses, thanks to a stable demand environment.
Image Source: Zacks Investment Research
Catalysts Behind the Increase in Share Price
ITW’s Automotive OEM (Original Equipment Manufacturer) segment benefits from strong organic growth in North America and Europe. Growth across both North America and international operations and strength across institutional end markets are key growth drivers for the Food Equipment unit. Strength in the capital equipment business bodes well for the Test & Measurement and Electronics segment. Solid industrial and oil and gas businesses augur well for the Welding segment.
Despite macroeconomic uncertainties, Illinois Tool’s bullish guidance for 2023 holds promise. The company expects organic growth of 3-5% for the current year. For 2023, the company expects revenues to increase 2-4% year over year. ITW raised its earnings guidance to $9.45-$9.85 per share compared with $9.40-$9.80 anticipated earlier.
Illinois Tool’s commitment to reward its shareholders through dividends and share buybacks also drove its shares higher. In August 2022, the company hiked its dividend by 7% to $1.31 per share. In the first quarter of 2023, the company bought back shares worth $375 million. In 2023, Illinois Tool expects to repurchase $1.5 billion worth of shares.
Strong free cash flow generation capacity supports the company’s shareholder-friendly activities. Free cash flow of $615 million surged more than 100% year over year in the first quarter. The conversion rate to net income was 86%. Free cash flow is expected to be more than 100% of net income in 2023.
Will the Uptrend in Shares Last?
While supply chain issues persist, the situation has improved. This should aid Illinois Tool’s performance in 2023. Although the manufacturing sector remains in the contraction territory, recent signs of an uptick in manufacturing activities bode well for all industrial companies, and ITW is no exception. An uptick in manufacturing activities is expected to translate into improved business volumes for ITW.
Zacks Rank & Key Picks
Illinois Tool presently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks within the broader Industrial Products sector are as follows:
Ingersoll Rand has an estimated earnings growth rate of 14.8% for the current year. The stock has rallied 23.7% in a year.
Flowserve (FLS - Free Report) currently flaunts a Zacks Rank #1. The company pulled off a trailing four-quarter earnings surprise of 2.5%, on average.
Flowserve has an estimated earnings growth rate of 64.5% for the current year. The stock has gained 7.6% in a year.
Graco Inc. (GGG - Free Report) sports a Zacks Rank #1 at present. The company pulled off a trailing four-quarter earnings surprise of 7.9%, on average.
Graco has an estimated earnings growth rate of 16.3% for the current year. The stock has gained 22.5% in a year.
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Illinois Tool (ITW) Up 8% in a Year: Will the Uptrend Continue?
Shares of Illinois Tool Works (ITW - Free Report) have gained 8.4% in a year primarily due to strength across most of its businesses, thanks to a stable demand environment.
Image Source: Zacks Investment Research
Catalysts Behind the Increase in Share Price
ITW’s Automotive OEM (Original Equipment Manufacturer) segment benefits from strong organic growth in North America and Europe. Growth across both North America and international operations and strength across institutional end markets are key growth drivers for the Food Equipment unit. Strength in the capital equipment business bodes well for the Test & Measurement and Electronics segment. Solid industrial and oil and gas businesses augur well for the Welding segment.
Despite macroeconomic uncertainties, Illinois Tool’s bullish guidance for 2023 holds promise. The company expects organic growth of 3-5% for the current year. For 2023, the company expects revenues to increase 2-4% year over year. ITW raised its earnings guidance to $9.45-$9.85 per share compared with $9.40-$9.80 anticipated earlier.
Illinois Tool’s commitment to reward its shareholders through dividends and share buybacks also drove its shares higher. In August 2022, the company hiked its dividend by 7% to $1.31 per share. In the first quarter of 2023, the company bought back shares worth $375 million. In 2023, Illinois Tool expects to repurchase $1.5 billion worth of shares.
Strong free cash flow generation capacity supports the company’s shareholder-friendly activities. Free cash flow of $615 million surged more than 100% year over year in the first quarter. The conversion rate to net income was 86%. Free cash flow is expected to be more than 100% of net income in 2023.
Will the Uptrend in Shares Last?
While supply chain issues persist, the situation has improved. This should aid Illinois Tool’s performance in 2023. Although the manufacturing sector remains in the contraction territory, recent signs of an uptick in manufacturing activities bode well for all industrial companies, and ITW is no exception. An uptick in manufacturing activities is expected to translate into improved business volumes for ITW.
Zacks Rank & Key Picks
Illinois Tool presently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks within the broader Industrial Products sector are as follows:
Ingersoll Rand (IR - Free Report) currently sports a Zacks Rank #1 (Strong Buy). The company pulled off a trailing four-quarter earnings surprise of 12.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingersoll Rand has an estimated earnings growth rate of 14.8% for the current year. The stock has rallied 23.7% in a year.
Flowserve (FLS - Free Report) currently flaunts a Zacks Rank #1. The company pulled off a trailing four-quarter earnings surprise of 2.5%, on average.
Flowserve has an estimated earnings growth rate of 64.5% for the current year. The stock has gained 7.6% in a year.
Graco Inc. (GGG - Free Report) sports a Zacks Rank #1 at present. The company pulled off a trailing four-quarter earnings surprise of 7.9%, on average.
Graco has an estimated earnings growth rate of 16.3% for the current year. The stock has gained 22.5% in a year.