Illinois Tool Works (ITW) 2014 Review

Illinois Tool Works manufactures industrial products and equipment for the transportation, construction, power systems and electronics, industrial packaging, food equipment, polymers and fluids incorporating over 800 businesses in 58 countries. It has generated an 11-20% return of equity and has grown earnings and dividends at a 10-12% rate over the past 10 years.  As might be expected for a company serving the housing and automotive markets, earnings are somewhat cyclical.  However, this high quality, well managed company should continue to generate an above average long term earnings growth rate as a result of:

(1) the company’s aggressive acquisition program,

(2) focus on cost reduction,

(3) new product development as well as a continual broadening of its product lines,

(4) an ongoing stock buyback program.

Negatives:

(1) it is in a highly competitive industry,

(2) a significant portion of its business is international thereby exposing it to currency risk,

(3) several of its major product lines service cyclical businesses.

Illinois Tool Works is rated A++ by Value Line, has a debt to equity ratio of about 36%, and its stock yields approximately 1.9%.

  Statistical Summary

                 Stock     Dividend         Payout      # Increases  

                Yield      Growth Rate     Ratio       Since 2004

ITW           1.9%           9%              35%             9

Ind Ave      1.3               8                22               NA 

                Debt/                        EPS Down       Net        Value Line

                Equity         ROE      Since 2004      Margin       Rating

ITW          36%             22%             3                13%          A++

Ind Ave     21                14              NA               8            NA

 

     Chart

            Note: ITW stock made great progress off its March 2009 low, quickly surpassing the downtrend off its October 2007 high (straight red line) and the November 2008 trading high (green line).  Long term, it is in an uptrend (blue lines).  Intermediate term, it is in an uptrend (purple lines).  Short term, it is in and uptrend (brown line).  The wiggly red line is the 50 day moving average.   The Dividend Growth Portfolio owns a 50% position, having Sold Half when the stock hit the upper boundary of its intermediate term uptrend back in 2011 (it never pays to violate your own Price Discipline).  The upper boundary of its Buy Value Range is $39; the lower boundary of its Sell Half Range is $85---meaning anyone owning a full position should be lightening up.

http://finance.yahoo.com/q?s=ITW

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