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Can Illinois Tool (ITW) Keep Earnings Streak Alive in Q1?

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Industrial products and equipment manufacturer, Illinois Tool Works Inc. (ITW - Free Report) is set to release first-quarter 2017 results on Apr 24, before the market opens.

Over the last three months, the company’s shares yielded 6.51% return, outperforming the gain of 4.89% recorded by the Zacks categorized Machinery General Industrial industry.

Also, the company performed well in the last four quarters, beating estimates on all occasions with an average positive earnings surprise of 2.20%. Let us see whether the company will be able to maintain its earnings streak this quarter.

What is Driving the Better-than-Expected Earnings?

We believe that Illinois Tool Works’ efforts toward development of its core segments as well as creation of new platforms will boost its long-term growth opportunities. Also, the company’s focus on the 80/20 business process will help it achieve higher operating margins, better capital efficiency and solid return on invested capital. For the first quarter, the company anticipates earnings per share to be within $1.39−$1.49. Organic revenue growth is expected in the range of 1−2% while operating margin will likely exceed 22.5%.

In addition, the U.S. government’s policies encouraging better trade relations, increase in infrastructural investments, job creation and high consumer-end demand will support growth of the machinery companies like Illinois Tool Works. Also, other economic indicators are pointing toward a healthy business environment in the machinery industry.

Industrial production (measures the level of output of manufacturing, mining and utilities sectors in a country) grew 0.1% year over year in January, 0.4% in February and 1.5% in March. Notably, industrial production in the first quarter grew 1.5% year over year driven by improvements in manufacturing, mining and utilities outputs. Also, new export orders for U.S.-manufactured machinery increased 2.9% in the first two months of 2017.

Why a Likely Positive Surprise?

Our proven model shows that Illinois Tool Works is likely to beat estimates in first quarter. This is because the company has the combination of two key ingredients for a possible earnings beat – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: Illinois Tool Works has an ESP of +0.69%, with the Most Accurate Estimate of $1.46 exceeding the Zacks Consensus Estimate of $1.45.

Illinois Tool Works Inc. Price and EPS Surprise

 

Illinois Tool Works Inc. Price and EPS Surprise | Illinois Tool Works Inc. Quote

Zacks Rank: Illinois Tool Works’ Zacks Rank #3 increases the predictive power of ESP. Moreover, its positive ESP makes us reasonably confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies in the industry you may want to consider, as they have the right combination of elements to post an earnings beat this quarter, according to our model.

Parker-Hannifin Corporation (PH - Free Report) , with an Earnings ESP of +0.54% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nordson Corporation (NDSN - Free Report) , with an Earnings ESP of +0.77% and a Zacks Rank #2.

Altra Industrial Motion Corporation (AIMC - Free Report) , with an Earnings ESP of +5% and a Zacks Rank #2.

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