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Illinois Tool Works Inc. (NYSE:ITW) hammers out a lot more than just tools. With some 700 separate companies in more than 48 nations, ITW makes a range of products used in the automotive, construction, paper products, and food and beverage industries. The company's engineered products segment offers fasteners, nail guns, industrial adhesives, and automotive transmission components. The specialty systems unit's products include paint application equipment and welding machines.

Earnings are the story here. They've grown by double digits for the last 5 years, every year, going from $1.31 in 2001 to this year's $3.05. Analysts are looking for $3.40 next year. The third quarter's results were helped by strong international sales. The domestic revenues decreased due to softening in the U.S. automakers, 2% down in the North American Engineered Products unit.

Most of the improvement in earnings came from new acquisitions made in 2006. Look for more of the same in 2007, more buys and better earnings from them. In the first 3 quarters of 2006, ITW bought 34 companies combining for an additional $900 million in revenues. By the end of the year, those new sales should be around $1.2 billion, more than double the added revenues from acquisitions in 2004 and 2005. Although ITW focuses on buying small, often niche, companies and then making them more efficient, it has sold its consumer products holdings (appliances and cookware, exercise equipment, and ceramic tile).

There are several reasons this stock would appeal to more conservative investors. It has A+ financial strength and debt is only 10% of capital. The company has authorized a stock buyback program of 35 million shares (out of 566.9 million outstanding). Five million of those have been bought and the remainder will probably be done over the next 2 or 3 years. There's a decent dividend yielding 1.8%. Return on Equity is a respectable 19%.

Maybe the most compelling number of them all: the p/e ratio is a relatively modest 16. That compares to an annual average closer to 21 in the last 5 years. Investors haven't been bidding up the stock at the same rate as the earnings have been growing. That may change.

The stock price has been in a relatively tight range over the last 2 years with a stock split (2 for 1) earlier this year. With anticipated new growth from existing and acquired companies, it may be ready to move to a higher level. But to do that, it needs a surprise of some kind, a good surprise such as better earnings than expected or a major acquisition. Otherwise all the news is known and part of the current stock price.

ITW 1-yr chart:

ITW 1-yr chart

Source: Illinois Tool Works: Five Years Of Double Digit Growth