Illinois Tool Works Inc Valuation – April 2019 #ITW

Company Profile (excerpt from Reuters): Illinois Tool Works Inc., incorporated on June 19, 1961, is a manufacturer of a range of industrial products and equipment. The Company operates through seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products, and Specialty Products. As of December 31, 2016, the Company had 85 divisions in 57 countries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ITW – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $48,387,279,394 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.63 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 52.27% Pass
6. Moderate PEmg Ratio PEmg < 20 22.20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 15.06 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.63 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.70 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.67
MG Growth Estimate 3.23%
MG Value $99.71
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $96.68
MG Value based on 0% Growth $56.67
Market Implied Growth Rate 6.85%
Current Price $148.01
% of Intrinsic Value 148.43%

Illinois Tool Works Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $5.49 in 2015 to an estimated $6.67 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.85% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Illinois Tool Works Inc. revealed the company was trading above its Graham Number of $41.22. The company pays a dividend of $3.56 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 22.2, which was below the industry average of 24.48, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-17.6.

Illinois Tool Works Inc. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$17.60
Graham Number $41.22
PEmg 22.20
Current Ratio 1.63
PB Ratio 15.06
Current Dividend $3.56
Dividend Yield 2.41%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $5,778,000,000
Total Current Liabilities $3,542,000,000
Long-Term Debt $6,029,000,000
Total Assets $14,870,000,000
Intangible Assets $5,717,000,000
Total Liabilities $11,612,000,000
Shares Outstanding (Diluted Average) 331,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.70
Dec2018 $7.60
Dec2017 $4.86
Dec2016 $5.70
Dec2015 $5.13
Dec2014 $7.28
Dec2013 $3.74
Dec2012 $6.06
Dec2011 $4.19
Dec2010 $2.99
Dec2009 $1.89
Dec2008 $2.91
Dec2007 $3.36
Dec2006 $3.01
Dec2005 $1.30
Dec2004 $1.10
Dec2003 $1.66
Dec2002 $1.16
Dec2001 $1.32
Dec2000 $1.58
Dec1999 $1.38

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.67
Dec2018 $6.14
Dec2017 $5.39
Dec2016 $5.63
Dec2015 $5.49
Dec2014 $5.39
Dec2013 $4.23
Dec2012 $4.18
Dec2011 $3.18
Dec2010 $2.73
Dec2009 $2.57
Dec2008 $2.71
Dec2007 $2.44
Dec2006 $1.87
Dec2005 $1.30
Dec2004 $1.32
Dec2003 $1.43

Recommended Reading:

Other ModernGraham posts about the company

Illinois Tool Works Inc Valuation – June 2018 $ITW
Best Dividend Paying Stocks for Dividend Growth Investors – August 2017
Illinois Tool Works Inc Valuation – August 2017 $ITW
9 Best Stocks For Value Investors This Week – 7/8/16
Illinois Tool Works Inc Valuation – July 2016 $ITW

Other ModernGraham posts about related companies

Ingersoll-Rand PLC Valuation – January 2019 $IR
General Electric Co Valuation – November 2018 $GE
3M Co Valuation – November 2018 $MMM
ITT Inc Valuation – July 2018 $ITT
Illinois Tool Works Inc Valuation – June 2018 $ITW
Honeywell International Inc Valuation – June 2018 $HON
General Electric Co Valuation – February 2018 $GE
3M Company Valuation – February 2018 $MMM
Raven Industries Inc Valuation – September 2017 $RAVN
Illinois Tool Works Inc Valuation – August 2017 $ITW

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Illinois Tool Works Inc Valuation – June 2018 $ITW

Company Profile (excerpt from Reuters): Illinois Tool Works Inc., incorporated on June 19, 1961, is a manufacturer of a range of industrial products and equipment. The Company operates through seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products, and Specialty Products. As of December 31, 2016, the Company had 85 divisions in 57 countries.

ITW Chart

ITW data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ITW – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $47,579,820,675 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.20 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 100.22% Pass
6. Moderate PEmg Ratio PEmg < 20 22.96 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.61 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.20 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.97 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.14
MG Growth Estimate 2.07%
MG Value $77.60
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $89.01
MG Value based on 0% Growth $52.18
Market Implied Growth Rate 7.23%
Current Price $140.95
% of Intrinsic Value 181.63%

Illinois Tool Works Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $5.39 in 2014 to an estimated $6.14 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.23% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Illinois Tool Works Inc. revealed the company was trading above its Graham Number of $47.91. The company pays a dividend of $2.86 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 22.96, which was below the industry average of 30.55, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-16.27.

Illinois Tool Works Inc. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$16.27
Graham Number $47.91
PEmg 22.96
Current Ratio 2.20
PB Ratio 11.61
Current Dividend $2.86
Dividend Yield 2.03%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $6,423,000,000
Total Current Liabilities $2,925,000,000
Long-Term Debt $6,889,000,000
Total Assets $16,163,000,000
Intangible Assets $6,021,000,000
Total Liabilities $12,000,000,000
Shares Outstanding (Diluted Average) 342,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.60
Dec2017 $4.86
Dec2016 $5.70
Dec2015 $5.13
Dec2014 $7.28
Dec2013 $3.74
Dec2012 $6.06
Dec2011 $4.19
Dec2010 $2.99
Dec2009 $1.89
Dec2008 $2.91
Dec2007 $3.36
Dec2006 $3.01
Dec2005 $2.60
Dec2004 $2.20
Dec2003 $1.66
Dec2002 $1.16
Dec2001 $1.32
Dec2000 $1.58
Dec1999 $1.38
Dec1998 $1.33

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.14
Dec2017 $5.39
Dec2016 $5.63
Dec2015 $5.49
Dec2014 $5.39
Dec2013 $4.23
Dec2012 $4.18
Dec2011 $3.18
Dec2010 $2.73
Dec2009 $2.65
Dec2008 $2.96
Dec2007 $2.85
Dec2006 $2.44
Dec2005 $2.03
Dec2004 $1.69
Dec2003 $1.43
Dec2002 $1.32

Recommended Reading:

Other ModernGraham posts about the company

Best Dividend Paying Stocks for Dividend Growth Investors – August 2017
Illinois Tool Works Inc Valuation – August 2017 $ITW
9 Best Stocks For Value Investors This Week – 7/8/16
Illinois Tool Works Inc Valuation – July 2016 $ITW
Dividend Growth Stocks for Intelligent Investors – June 2016

Other ModernGraham posts about related companies

General Electric Co Valuation – February 2018 $GE
3M Company Valuation – February 2018 $MMM
Raven Industries Inc Valuation – September 2017 $RAVN
Illinois Tool Works Inc Valuation – August 2017 $ITW
Honeywell International Inc Valuation – July 2017 $HON
Carlisle Companies Inc Valuation – Initial Coverage $CSL
ITT Inc Valuation – Initial Coverage $ITT
3M Co. Valuation – December 2016 $MMM
E I du Pont de Nemours & Co Valuation – August 2016 $DD
3M Company Valuation – August 2016 $MMM

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Illinois Tool Works Inc Valuation – August 2017 $ITW

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Illinois Tool Works Inc (ITW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Illinois Tool Works Inc. is a manufacturer of industrial products and equipment. The Company operates through seven segments. The Automotive OEM segment produces components and fasteners for automotive-related applications. The Food Equipment segment offers commercial food equipment. The Test & Measurement and Electronics segment produces test and measurement, and electronic manufacturing and maintenance, repair and operations (MRO) solutions. The Welding segment produces welding equipment, consumables and accessories for industrial and commercial applications. The Polymers & Fluids segment produces adhesives, sealants, lubrication and cutting fluids, and fluids and polymers for auto aftermarket maintenance and appearance. The Construction Products segment supplies engineered fastening systems and solutions. The Specialty Products segment produces beverage packaging equipment and consumables, product coding and marking equipment and consumables, and appliance components and fasteners.

ITW Chart

ITW data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ITW – August 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $47,616,520,187 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.32 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 124.78% Pass
6. Moderate PEmg Ratio PEmg < 20 23.09 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 10.08 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.32 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.97 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $5.99
MG Growth Estimate 6.27%
MG Value $126.13
Opinion Fairly Valued
MG Grade B
MG Value based on 3% Growth $86.89
MG Value based on 0% Growth $50.94
Market Implied Growth Rate 7.29%
Current Price $138.36
% of Intrinsic Value 109.69%

Illinois Tool Works Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the  high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $4.23 in 2013 to an estimated $5.99 for 2017.  This level of demonstrated earnings growth supports the market’s implied estimate of 7.29% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Illinois Tool Works Inc. revealed the company was trading above its Graham Number of $42.93.  The company pays a dividend of $2.4 per share, for a yield of 1.7%  Its PEmg (price over earnings per share – ModernGraham) was 23.09, which was below the industry average of 26.48, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $-13.18.

Illinois Tool Works Inc. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$13.18
Graham Number $42.93
PEmg 23.09
Current Ratio 2.32
PB Ratio 10.08
Current Dividend $2.40
Dividend Yield 1.73%
Number of Consecutive Years of Dividend Growth 20

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2017
Total Current Assets $6,570,000,000
Total Current Liabilities $2,826,000,000
Long-Term Debt $7,360,000,000
Total Assets $15,922,000,000
Intangible Assets $6,041,000,000
Total Liabilities $11,151,000,000
Shares Outstanding (Diluted Average) 347,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.68
Dec2016 $5.70
Dec2015 $5.13
Dec2014 $7.28
Dec2013 $3.74
Dec2012 $6.06
Dec2011 $4.19
Dec2010 $2.99
Dec2009 $1.89
Dec2008 $2.91
Dec2007 $3.36
Dec2006 $3.01
Dec2005 $2.60
Dec2004 $2.20
Dec2003 $1.66
Dec2002 $1.16
Dec2001 $1.32
Dec2000 $1.58
Dec1999 $1.38
Dec1998 $1.33
Dec1997 $1.14

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.99
Dec2016 $5.63
Dec2015 $5.49
Dec2014 $5.39
Dec2013 $4.23
Dec2012 $4.18
Dec2011 $3.18
Dec2010 $2.73
Dec2009 $2.65
Dec2008 $2.96
Dec2007 $2.85
Dec2006 $2.44
Dec2005 $2.03
Dec2004 $1.69
Dec2003 $1.43
Dec2002 $1.32
Dec2001 $1.39

Recommended Reading:

Other ModernGraham posts about the company

Illinois Tool Works Inc Valuation – July 2016 $ITW
Dividend Growth Stocks for Intelligent Investors – June 2016
Dividend Growth Stocks for Intelligent Investors – February 2016
Illinois Tool Works Inc Valuation – January 2016 Update $ITW
Dividend Growth Stocks for the Intelligent Investor – November 2015

Other ModernGraham posts about related companies

E I du Pont de Nemours & Co Valuation – August 2016 $DD
3M Company Valuation – August 2016 $MMM
General Electric Co Valuation – July 2016 $GE
Illinois Tool Works Inc Valuation – July 2016 $ITW
Raven Industries Inc Valuation – July 2016 $RAVN
E.I. du Pont de Nemours Valuation – February 2016 $DD
Honeywell International Inc Valuation – February 2016 $HON
3M Company Valuation – February 2016 Update $MMM
Raven Industries Inc Valuation – January 2016 Update $RAVN
Illinois Tool Works Inc Valuation – January 2016 Update $ITW

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Illinois Tool Works Inc Valuation – July 2016 $ITW

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Illinois Tool Works Inc (ITW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Illinois Tool Works Inc. (ITW) is a manufacturer of a range of industrial products and equipment. The Company operates through seven segments: Automotive OEM, Test & Measurement and Electronics, Food Equipment, Polymers & Fluids, Welding, Construction Products and Specialty Products. It produces components and fasteners for automotive-related applications; equipment, consumables and related software for testing and measuring of materials and structures, and equipment and consumables used in the production of electronic subassemblies and microelectronics; adhesives, sealants, lubrication and cutting fluids, and fluids and polymers for auto aftermarket maintenance and appearance; arc welding equipment, consumables and accessories for a range of industrial and commercial applications, and beverage packaging equipment and consumables, product coding and marking equipment, and consumables, and appliance components and fasteners. It has over 80 divisions in approximately 60 countries.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
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Downloadable PDF version of this valuation:

ModernGraham Valuation of ITW – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $37,470,431,694 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.30 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 118.87% Pass
6. Moderate PEmg Ratio PEmg < 20 18.97 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.33 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.30 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.80 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ITW value chart July 2016

EPSmg $5.54
MG Growth Estimate 4.85%
MG Value $100.87
Opinion Fairly Valued
MG Grade B+
MG Value based on 3% Growth $80.38
MG Value based on 0% Growth $47.12
Market Implied Growth Rate 5.24%
Current Price $105.17
% of Intrinsic Value 104.27%

Illinois Tool Works Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $4.19 in 2012 to an estimated $5.54 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 5.24% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Illinois Tool Works Inc. performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

ITW charts July 2016

Net Current Asset Value (NCAV) -$10.93
Graham Number $42.20
PEmg 18.97
Current Ratio 2.30
PB Ratio 7.33
Current Dividend $2.14
Dividend Yield 2.03%
Number of Consecutive Years of Dividend Growth 20

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $6,241,000,000
Total Current Liabilities $2,716,000,000
Long-Term Debt $6,353,000,000
Total Assets $15,437,000,000
Intangible Assets $6,005,000,000
Total Liabilities $10,219,000,000
Shares Outstanding (Diluted Average) 363,900,000

Earnings Per Share History

Next Fiscal Year Estimate $5.45
Dec2015 $5.13
Dec2014 $7.28
Dec2013 $3.74
Dec2012 $6.06
Dec2011 $4.19
Dec2010 $3.03
Dec2009 $1.89
Dec2008 $2.91
Dec2007 $3.36
Dec2006 $3.01
Dec2005 $2.60
Dec2004 $2.20
Dec2003 $1.66
Dec2002 $1.16
Dec2001 $1.32
Dec2000 $1.58
Dec1999 $1.38
Dec1998 $1.34
Dec1997 $1.17
Dec1996 $0.98

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.54
Dec2015 $5.49
Dec2014 $5.40
Dec2013 $4.23
Dec2012 $4.19
Dec2011 $3.19
Dec2010 $2.74
Dec2009 $2.65
Dec2008 $2.96
Dec2007 $2.85
Dec2006 $2.43
Dec2005 $2.03
Dec2004 $1.69
Dec2003 $1.43
Dec2002 $1.32
Dec2001 $1.39
Dec2000 $1.38

Recommended Reading:

Other ModernGraham posts about the company

Dividend Growth Stocks for Intelligent Investors – June 2016
Dividend Growth Stocks for Intelligent Investors – February 2016
Illinois Tool Works Inc Valuation – January 2016 Update $ITW
Dividend Growth Stocks for the Intelligent Investor – November 2015
Dividend Growth Stocks for the Intelligent Investor – October 2015

Other ModernGraham posts about related companies

E.I. du Pont de Nemours Valuation – February 2016 $DD
Honeywell International Inc Valuation – February 2016 $HON
3M Company Valuation – February 2016 Update $MMM
Raven Industries Inc Valuation – January 2016 Update $RAVN
Illinois Tool Works Inc Valuation – January 2016 Update $ITW
E.I. du Pont de Nemours Valuation – February 2016 $DD
Honeywell International Inc Valuation – February 2016 $HON
3M Company Valuation – February 2016 Update $MMM
Raven Industries Inc Valuation – January 2016 Update $RAVN
Illinois Tool Works Inc Valuation – January 2016 Update $ITW

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Illinois Tool Works Inc Valuation – January 2016 Update $ITW

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Illinois Tool Works Inc (ITW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Illinois Tool Works Inc. (ITW) is a manufacturer of a range of industrial products and equipment. The Company’s operates in seven segments: Automotive OEM, Test & Measurement and Electronics, Food Equipment, Polymers & Fluids, Welding, Construction Products and Specialty Products. These operations serve end markets as automotive original equipment manufacturers/tiers, automotive aftermarket, general industrial, commercial food equipment and construction. It produces components and fasteners for automotive-related applications; equipment, consumables and related software; commercial food equipment, adhesives, sealants, lubrication and cutting fluids; arc welding equipment, consumables and accessories; construction fastening systems and truss products, and beverage packaging equipment and consumables. The Company operates approximately 90 divisions in 57 countries.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of ITW – January 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $33,099,560,030 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.56 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 73.49% Pass
6. Moderate PEmg Ratio PEmg < 20 16.40 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.48 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.56 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.65 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ITW value Chart January 2016

EPSmg $5.47
MG Growth Estimate 10.77%
MG Value $164.31
Opinion Undervalued
MG Value based on 3% Growth $79.32
MG Value based on 0% Growth $46.50
Market Implied Growth Rate 3.95%
Current Price $89.73
% of Intrinsic Value 54.61%

Illinois Tool Works Inc qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The Defensive Investor’s only concern is the high PB ratio while the Enterprising Investor is only concerned with the level of debt relative to the net current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.18 in 2011 to an estimated $5.47 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.95% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Illinois Tool Works Inc (ITW)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

ITW Charts January 2016

Net Current Asset Value (NCAV) -$11.03
Graham Number $39.99
PEmg 16.40
Current Ratio 2.56
PB Ratio 6.48
Dividend Yield 2.23%
Number of Consecutive Years of Dividend Growth 20

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $6,969,000,000
Total Current Liabilities $2,724,000,000
Long-Term Debt $7,000,000,000
Total Assets $16,104,000,000
Intangible Assets $6,088,000,000
Total Liabilities $11,018,000,000
Shares Outstanding (Diluted Average) 367,100,000

Earnings Per Share History

Next Fiscal Year Estimate $5.08
Dec14 $7.28
Dec13 $3.74
Dec12 $6.06
Dec11 $4.19
Dec10 $2.99
Dec09 $1.89
Dec08 $2.91
Dec07 $3.36
Dec06 $3.01
Dec05 $2.60
Dec04 $2.20
Dec03 $1.66
Dec02 $1.16
Dec01 $1.32
Dec00 $1.58
Dec99 $1.38
Dec98 $1.33
Dec97 $1.14
Dec96 $0.98
Dec95 $0.82

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.47
Dec14 $5.39
Dec13 $4.23
Dec12 $4.18
Dec11 $3.18
Dec10 $2.73
Dec09 $2.65
Dec08 $2.96
Dec07 $2.85
Dec06 $2.44
Dec05 $2.03
Dec04 $1.69
Dec03 $1.43
Dec02 $1.32
Dec01 $1.39
Dec00 $1.38
Dec99 $1.23

Recommended Reading:

Other ModernGraham posts about the company

Dividend Growth Stocks for the Intelligent Investor – November 2015
Dividend Growth Stocks for the Intelligent Investor – October 2015
13 Best Stocks For Value Investors This Week – 10/3/15
Illinois Tool Works Inc. Analysis – October 2015 Update $ITW
The 9 Best Stocks For Value Investors This Week – 7/18/15

Other ModernGraham posts about related companies

E I du Pont de Nemours & Co Valuation – November 2015 Update $DD
E I Du Pont de Nemours & Company Analysis – August 2015 Update $DD
E. I. Du Pont De Nemours and Company Quarterly Valuation – May 2015 $DD
Honeywell International Inc. Valuation – October 2015 Update $HON
Raven Industries Inc. Analysis – October 2015 Update $RAVN
Illinois Tool Works Inc. Analysis – October 2015 Update $ITW
3M Company Analysis – September 2015 Update $MMM
Honeywell International Inc. Analysis – July 2015 Update $HON
Raven Industries Inc. Analysis – Initial Coverage $RAVN
Illinois Tool Works Analysis – July 2015 Update $ITW

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Illinois Tool Works Inc. Analysis – October 2015 Update $ITW

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – September 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Illinois Tool Works Inc. (ITW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Illinois Tool Works Inc. (ITW) is a manufacturer of a range of industrial products and equipment. The Company’s operates in seven segments: Automotive OEM, Test & Measurement and Electronics, Food Equipment, Polymers & Fluids, Welding, Construction Products and Specialty Products. These operations serve end markets as automotive original equipment manufacturers/tiers, automotive aftermarket, general industrial, commercial food equipment and construction. It produces components and fasteners for automotive-related applications; equipment, consumables and related software; commercial food equipment, adhesives, sealants, lubrication and cutting fluids; arc welding equipment, consumables and accessories; construction fastening systems and truss products, and beverage packaging equipment and consumables. The Company operates approximately 90 divisions in 57 countries.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of ITW

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $30,587,233,803 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.56 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 73.17% Pass
6. Moderate PEmg Ratio PEmg < 20 15.16 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.75 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.56 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.63 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ITW value chart October 2015

EPSmg $5.46
MG Growth Estimate 10.64%
MG Value $162.56
Opinion Undervalued
MG Value based on 3% Growth $79.17
MG Value based on 0% Growth $46.41
Market Implied Growth Rate 3.33%
Current Price $82.78
% of Intrinsic Value 50.92%

Illinois Tool Works Inc. qualifies for the both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the high PB ratio.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.19 in 2011 to an estimated $5.46 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.33% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Illinois Tool Works Inc. (ITW)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

ITW charts October 2015

Net Current Asset Value (NCAV) -$10.89
Graham Number $40.48
PEmg 15.16
Current Ratio 2.56
PB Ratio 5.75
Dividend Yield 2.34%
Number of Consecutive Years of Dividend Growth 20

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $7,033,000,000
Total Current Liabilities $2,746,000,000
Long-Term Debt $6,994,000,000
Total Assets $16,348,000,000
Intangible Assets $6,222,000,000
Total Liabilities $11,046,000,000
Shares Outstanding (Diluted Average) 368,400,000

Earnings Per Share History

Next Fiscal Year Estimate $5.05
Dec14 $7.28
Dec13 $3.74
Dec12 $6.06
Dec11 $4.19
Dec10 $3.03
Dec09 $1.89
Dec08 $2.91
Dec07 $3.36
Dec06 $3.01
Dec05 $2.60
Dec04 $2.20
Dec03 $1.66
Dec02 $1.16
Dec01 $1.32
Dec00 $1.58
Dec99 $1.38
Dec98 $1.34
Dec97 $1.17
Dec96 $0.98
Dec95 $0.82

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.46
Dec14 $5.40
Dec13 $4.23
Dec12 $4.19
Dec11 $3.19
Dec10 $2.74
Dec09 $2.65
Dec08 $2.96
Dec07 $2.85
Dec06 $2.43
Dec05 $2.03
Dec04 $1.69
Dec03 $1.43
Dec02 $1.32
Dec01 $1.39
Dec00 $1.38
Dec99 $1.23

Recommended Reading:

Other ModernGraham posts about the company

The 9 Best Stocks For Value Investors This Week – 7/18/15
Illinois Tool Works Analysis – July 2015 Update $ITW
24 Companies in the Spotlight This Week – 3/28/15
Illinois Tool Works Inc. Quarterly Valuation – March 2015 $ITW
15 Companies in the Spotlight This Week – 12/27/14

Other ModernGraham posts about related companies

3M Company Analysis – September 2015 Update $MMM
Honeywell International Inc. Analysis – July 2015 Update $HON
Raven Industries Inc. Analysis – Initial Coverage $RAVN
Illinois Tool Works Analysis – July 2015 Update $ITW
3M Company Quarterly Valuation – May 2015 $MMM
Honeywell International Inc. Quarterly Valuation – May 2015 $HON
Illinois Tool Works Inc. Quarterly Valuation – March 2015 $ITW
General Electric Annual Valuation – 2015 $GE
3M Company Quarterly Valuation – February 2015 $MMM
Honeywell International Inc. Quarterly Valuation – January 2015 $HON

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Illinois Tool Works Analysis – July 2015 Update $ITW

220px-ITW-LogoIllinois Tool Works (ITW) has grown its earnings well over the last few years, a trait which may attract some investors. In addition, multiple analysts have focused on qualitative factors when reviewing the company. For example, Seeking Alpha contributor Richard Saintvilus recently wrote regarding thecompany’s history of beating earnings estimates and Doyle Publishing based his conclusion on the strong return on capital. These are great factors to consider in the final stages of an investment decision, but first one must use quantitative metrics to determine the company’s intrinsic value.

Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits.

The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using theModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

ITW Chart

ITW data by YCharts

[level-free]
To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
[/level-free]
[level-mg-stocks-screens-subscriber]

Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – PASS
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – Has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $92.78
MG Value $164.04
MG Opinion Undervalued
Value Based on 3% Growth $79.27
Value Based on 0% Growth $46.47
Market Implied Growth Rate 4.24%
Net Current Asset Value (NCAV) ($11.32)
PEmg 16.97
Current Ratio 2.43
PB Ratio 7.07

Balance Sheet

Current Assets $6,667,000,000
Current Liabilities $2,744,000,000
Total Debt $5,845,000,000
Total Assets $15,937,000,000
Intangible Assets $6,231,000,000
Total Liabilities $10,959,000,000
Outstanding Shares 379,200,000

Earnings Per Share

2015 (estimate) $5.07
2014 $7.28
2013 $3.74
2012 $6.06
2011 $4.19
2010 $2.99
2009 $1.89
2008 $2.91
2007 $3.36
2006 $3.01
2005 $2.60

Earnings Per Share – ModernGraham

2015 (estimate) $5.47
2014 $5.39
2013 $4.23
2012 $4.18
2011 $3.18
2010 $2.73

Dividend History

ITW Dividend Chart

ITW Dividend data by YCharts

Conclusion

Illinois Tool Works passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only concerned by the high PB ratio, while the Enterprising Investor’s only concern is the level of debt relative to the net current assets. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $3.18 in 2011 to an estimated $5.47 for 2015. This is a fairly strong level of demonstrated growth and outpaces the market’s implied estimate for annual earnings growth of only 4.24% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 14.34% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that Illinois Tool Works is significantly undervalued at the present time.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

[/level-mg-stocks-screens-subscriber]

Illinois Tool Works Inc. Quarterly Valuation – March 2015 $ITW

220px-ITW-Logo

Illinois Tool Works passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the high PB ratio, while the Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, ITW has grown its EPSmg (normalized earnings) from $2.73 in 2010 to $5.39 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 4.7% annually over the next 7-10 years. In fact, the historical growth is around 19.5% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.

Be sure to check out previous ModernGraham valuations of Illinois Tool Works Inc. (ITW) for a greater perspective!

Read the full valuation on Seeking Alpha!

ITW Chart

ITW data by YCharts

Disclaimer: The author did not hold a position in Illinois Tool Works Inc. (ITW) at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Illinois Tool Works Quarterly Valuation – December 2014 $ITW

220px-ITW-Logo

Illinois Tool Works should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios, while the Enterprising Investor is only concerned by the level of debt relative to the net current assets. Therefore, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $2.73 in 2010 to an estimated $4.50 for 2014. This is very strong and an impressive level of demonstrated growth which is in line with the market’s implied estimate for earnings growth of 6.54% over the next 7-10 years. In fact, actual historical growth is about 13% per year, so the market has priced in an earnings drop to a more sustainable level over the long term. The ModernGraham valuation model therefore returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating the company is fairly valued at the present time.

Be sure to check out previous ModernGraham valuations of Illinois Tool Works for greater perspective!

Read the full valuation on Seeking Alpha!

ITW Chart

ITW data by YCharts

Disclaimer:  The author did not hold a position in Illinois Tool Works (ITW) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Illinois Tool Works Inc. Quarterly Stock Valuation – September 2014 $ITW

220px-ITW-LogoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – September 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Illinois Tool Works (ITW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Illinois Tool Works Inc. is a multinational manufacturer of a diversified range of industrial products and equipment with operations in 58 countries. The Company operates in six segments: Transportation, Power Systems & Electronics, Food Equipment, Construction Products, Polymers & Fluids, and All Other. In July 2013, Illinois Tool Works Inc acquired Gold Pattern Holdings. In May 2014, the Company sold Industrial Packaging segment to The Carlyle Group.
ITW Chart

ITW data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $88.62
MG Value $106.18
MG Opinion Fairly Valued
Value Based on 3% Growth $62.03
Value Based on 0% Growth $36.36
Market Implied Growth Rate 6.11%
Net Current Asset Value (NCAV) -$4.31
PEmg 20.72
Current Ratio 2.50
PB Ratio 4.17

Balance Sheet – 6/30/2014

Current Assets $9,791,000,000
Current Liabilities $3,923,000,000
Total Debt $6,140,000,000
Total Assets $19,936,000,000
Intangible Assets $6,780,000,000
Total Liabilities $11,501,000,000
Outstanding Shares 396,510,000

Earnings Per Share

2014 (estimate) $4.53
2013 $3.63
2012 $5.27
2011 $4.08
2010 $3.03
2009 $1.93
2008 $3.04
2007 $3.28
2006 $3.01
2005 $2.60
2004 $2.20

Earnings Per Share – ModernGraham

2014 (estimate) $4.28
2013 $3.96
2012 $3.91
2011 $3.18
2010 $2.77
2009 $2.68

Dividend History
ITW Dividend Chart

ITW Dividend data by YCharts

Conclusion:

Illinois Tool Works is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.77 in 2010 to an estimated $4.28 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 6.11% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

Be sure to check out the previous ModernGraham valuations of Illinois Tool Works (ITW) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Illinois Tool Works (ITW)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Illinois Tool Works (ITW) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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