Illinois Tool Works: Take Some Money Off The Table

Jan.31.12 | About: Illinois Tool (ITW)

Illinois Tool Works (NYSE:ITW) manufactures components and fasteners for the automotive, construction and industrial applications; specialty products; machinery for the automotive, construction, food and beverage and industrial markets in over 57 countries. It has generated an 11-15% return of equity and has grown earnings and dividends at an 8-15% rate over the past 10 years. As might be expected for a company serving the housing and automotive markets, ITW experienced a significant decline in earnings in 2009. However, this high quality, well managed company is witnessing a rebound in 2010 and is positioned to resume its growth because:

  • the company's aggressive acquisition program,
  • increased market penetration,
  • new product development as well as a continual broadening of its product lines,
  • a major restructuring and cost cutting program which will improve operating efficiencies.

Negatives:

  • it is in a highly competitive industry,
  • a significant portion of its business is international thereby exposing it to currency risk,
  • 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 20%, and its stock yields approximately 2.4%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2001
ITW 2.4% 4% 31% 10
IND* 1.8 5 20 NA
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Debt/Equity ROE EPS Down Since 2001 Net Margin Value Line Rating
ITW 20% 20% 2 11% A++
IND* 21 17 NA 9 NA
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*IND is the average of the Metal Fabrication Industry as compiled from Value Line.

Note: ITW stock made good progress off its March 2009 low (1) surpassing the down trend off its October 2007 high (red line) and the November 2008 trading high (green line) and (2) trading into its Sell Half Range [the Dividend Growth Portfolio Sold shares at $54]. Long term the stock is in an up trend (straight blue lines). Intermediate term it is in a trading range (purple lines). The wiggly blue line is on balance volume. The Dividend Growth Portfolio owns a 75% position in ITW, having recently Bought back a portion of the aforementioned shares at $42. The upper boundary of its Buy Value Range is $34; the lower boundary of its Sell Half Range is $54

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Disclosure: I am long ITW.