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Category: Stock Market and Illinois Tool Works
Date: 3 February 2020 Stock Price: $174.98 We take a look at the 4th quarter earnings report of their 2019 fiscal year of Illinois Tool Works, a fortune 200 company that is a global multi-industrial manufacturing company with over 45 000 employees.
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About Illinois Tool Works (ITW)
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.1 billion in 2019. The company’s seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW’s approximately 45,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture
Overview of Illinois Tool Works 4th quarter 2019 earnings report
- Operating revenues: $3.469 billion (down from $3.580 billion for the same quarter of the previous year)
- Operating revenues decreased by -3.1% over the last 12 months
- Cost of revenue: $2.022 billion (down from $2.096 billion for the same quarter of the previous year)
- Cost of revenue decreased by -3.53% over the last 12 months
- Slight margin improvement for Illinois Tool Works with cost of revenues declining by more than their revenues
- Net income: $641 million (up from $607 million for the same quarter of the previous year)
- Diluted earnings per share: $1.99 (up from $1.83 for the same quarter of the previous year)
- PE ratio of Illinois Tool Works: 22.5
- Dividend declared: $1.07
- Dividend yield of Illinois Tool Works: 2.4%
- Diluted weighted-average shares outstanding: 322.9 million (down from 331.6 million for the same quarter of the previous year)
- Cash and cash equivalents: $1.981 billion
- Cash and cash equivalents per share: $6.13
- Cash and cash equivalents makes up 3.5% of Illinois Tool Works market capital
- Cash and cash equivalents makes up 13.14% of Illinois Tool Works total assets
- Trade receivable: $2.461 billion
- Accounts receivable makes up 16.7% of Illinois Tool Works total assets
- Inventories of Illinois Tool Works: $11.266 billion
- Inventories makes up 7.7% of Illinois Tool Works total assets
- Stockholders equity of Illinois Tool Works: $3.030 billion
- Stockholders equity per share: $9.38
- So Illinois Tool Works is trading at 18.6 times its stockholders equity which is well outside the expected range of between 2 and 4 times that most firms tend to trade at.
- Cash generated from operations (for the quarter) : $774 million
- Cash generated from operations per share (for the quarter): $2.39
Illinois Tool Works management commentary on their 4th quarter 2019 earnings report
GLENVIEW, Ill., Jan. 31, 2020 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its fourth-quarter and full-year 2019 results.
“The ITW team closed out 2019 with another quarter of strong execution and resilient financial performance,” said E. Scott Santi, chairman and chief executive officer. “Despite near-term macro challenges, we grew earnings per share nine percent, delivered 24.1 percent operating margin excluding higher restructuring expenses and improved after-tax return on invested capital 120 basis points to 28.9 percent
“For the year, in a contracting industrial demand environment including a six percent decline in global auto builds, ITW grew earnings per share five percent excluding the impact of foreign currency headwinds, higher restructuring expenses and divestiture gains. We expanded operating margin to 24.4 percent excluding higher restructuring expenses, improved after-tax return on invested capital to 28.7 percent, increased free cash flow nine percent and returned $2.8 billion to shareholders in the form of dividends and share repurchases. Throughout 2019, we executed very well on the things within our control and continued to make meaningful progress on our path to full-potential performance through the implementation of our ‘Finish the Job’ enterprise strategy agenda. ITW’s proprietary and powerful business model, diversified high-quality business portfolio and dedicated team of highly skilled ITW colleagues around the world position us well to continue to deliver differentiated performance in 2020 and beyond,” Santi concluded.
“The ITW team closed out 2019 with another quarter of strong execution and resilient financial performance,” said E. Scott Santi, chairman and chief executive officer. “Despite near-term macro challenges, we grew earnings per share nine percent, delivered 24.1 percent operating margin excluding higher restructuring expenses and improved after-tax return on invested capital 120 basis points to 28.9 percent
“For the year, in a contracting industrial demand environment including a six percent decline in global auto builds, ITW grew earnings per share five percent excluding the impact of foreign currency headwinds, higher restructuring expenses and divestiture gains. We expanded operating margin to 24.4 percent excluding higher restructuring expenses, improved after-tax return on invested capital to 28.7 percent, increased free cash flow nine percent and returned $2.8 billion to shareholders in the form of dividends and share repurchases. Throughout 2019, we executed very well on the things within our control and continued to make meaningful progress on our path to full-potential performance through the implementation of our ‘Finish the Job’ enterprise strategy agenda. ITW’s proprietary and powerful business model, diversified high-quality business portfolio and dedicated team of highly skilled ITW colleagues around the world position us well to continue to deliver differentiated performance in 2020 and beyond,” Santi concluded.
2020 Guidance
The company initiated full-year EPS guidance in a range of $7.65 to $8.05 per share. At current levels of demand, organic growth is forecast to be in the range of zero to two percent. Foreign currency translation and divestitures are projected to reduce revenues by one percentage point each. PLS impact is forecast to moderate to approximately 50 basis points. Operating margin is expected to improve and be in a range of 24.5 to 25 percent, with enterprise initiatives contributing approximately 100 basis points. Free cash flow is expected to be greater than 100 percent of net income. The Company expects an effective tax rate in the range of 23.5 to 24.5 percent and plans to repurchase approximately $2 billion of its shares in 2020.
The company initiated full-year EPS guidance in a range of $7.65 to $8.05 per share. At current levels of demand, organic growth is forecast to be in the range of zero to two percent. Foreign currency translation and divestitures are projected to reduce revenues by one percentage point each. PLS impact is forecast to moderate to approximately 50 basis points. Operating margin is expected to improve and be in a range of 24.5 to 25 percent, with enterprise initiatives contributing approximately 100 basis points. Free cash flow is expected to be greater than 100 percent of net income. The Company expects an effective tax rate in the range of 23.5 to 24.5 percent and plans to repurchase approximately $2 billion of its shares in 2020.
Illinois Tool Works (NYSE: ITW) stock price history
The image below, obtained from Google, shows the stock price history of Illinois Tool Works over the last 5 years. And it's been a pretty good time for Illinois Tool Works stockholders. 5 years ago it was trading at $97 and its currently trading at around $174.98 a stock. That's a very strong return of 80.4% provided to Illinois Tool Works stockholders over the last 5 years.
The stock of Illinois Tool Works is trading at very close to its 52 week high of $182.34 and far away from its 52 week low of $130 a stock, which to us is a clear indication that the short term sentiment and momentum of Illinois Tool Works stock is very positive at this point in time.
The stock of Illinois Tool Works is trading at very close to its 52 week high of $182.34 and far away from its 52 week low of $130 a stock, which to us is a clear indication that the short term sentiment and momentum of Illinois Tool Works stock is very positive at this point in time.
Recent coverage of Illinois Tool Works
The extract below discusses the latest on Illinois Tool Works (NYSE: ITW) as obtained from Fool.com
The Dividend Aristocrats -- stocks that have increased their dividends each year for at least 25 consecutive years -- are an elite group, especially right now. In recent years, the Great Recession and the oil price downturn of 2014-2017 forced some then-Aristocrats -- and a few would-be ones -- to slash their dividends, taking them off the list for at least another quarter-century
However, that means that the companies that remain on the list have already proven their commitment to shareholders by upping their dividend during some very tough times. But beyond their proven reliability, here's why ExxonMobil (NYSE:XOM), Coca-Cola (NYSE:KO), and Illinois Tool Works (NYSE:ITW) are the kinds of top dividend stocks you can buy and hold forever...or at least for a long time horizon.
All over the map
While ExxonMobil is specifically focused on oil and gas, and Coca-Cola on beverages, fellow Dividend Aristocrat Illinois Tool Works has a more diversified portfolio, manufacturing everything from the simple (six-pack rings and door handles) to the complex (welding systems and commercial dishwashers). No single segment dominates the company's earnings: Automotive original equipment manufacturing is the company's largest segment but only contributes about 20% of revenue.
Despite its diversified product lineup, Illinois Tool Works commands relatively high margins for a manufacturing company. In the most recently reported quarter (Q3 2019), the company sported a 25% operating margin. Management believes it can increase that margin to about 28% in 2023. That should be more than enough to continue fueling the company's annual dividend boosts, which have been going on for 47 consecutive years.
Despite these many increases, though, Illinois Tool Works' current yield is only 2.3%. While there are other Dividend Aristocrats -- including ExxonMobil and Coca-Cola -- with better yields, Illinois Tool Works' diversification and high margins make it an excellent pick to buy and hold for the long term.
Read the full article here
The Dividend Aristocrats -- stocks that have increased their dividends each year for at least 25 consecutive years -- are an elite group, especially right now. In recent years, the Great Recession and the oil price downturn of 2014-2017 forced some then-Aristocrats -- and a few would-be ones -- to slash their dividends, taking them off the list for at least another quarter-century
However, that means that the companies that remain on the list have already proven their commitment to shareholders by upping their dividend during some very tough times. But beyond their proven reliability, here's why ExxonMobil (NYSE:XOM), Coca-Cola (NYSE:KO), and Illinois Tool Works (NYSE:ITW) are the kinds of top dividend stocks you can buy and hold forever...or at least for a long time horizon.
All over the map
While ExxonMobil is specifically focused on oil and gas, and Coca-Cola on beverages, fellow Dividend Aristocrat Illinois Tool Works has a more diversified portfolio, manufacturing everything from the simple (six-pack rings and door handles) to the complex (welding systems and commercial dishwashers). No single segment dominates the company's earnings: Automotive original equipment manufacturing is the company's largest segment but only contributes about 20% of revenue.
Despite its diversified product lineup, Illinois Tool Works commands relatively high margins for a manufacturing company. In the most recently reported quarter (Q3 2019), the company sported a 25% operating margin. Management believes it can increase that margin to about 28% in 2023. That should be more than enough to continue fueling the company's annual dividend boosts, which have been going on for 47 consecutive years.
Despite these many increases, though, Illinois Tool Works' current yield is only 2.3%. While there are other Dividend Aristocrats -- including ExxonMobil and Coca-Cola -- with better yields, Illinois Tool Works' diversification and high margins make it an excellent pick to buy and hold for the long term.
Read the full article here
Illinois Tool Works (NYSE: ITW) latest stock valuation
So what is Illinois Tool Works stock worth based on the release of their latest earnings report and the fiscal guidance provided for Illinois Tool Works 2020 fiscal year? Based on Illinois Tool Works latest earnings and their outlook provided our valuation model provides a target price (full value price) at $125.60 a Illinois Tool Works stock. We therefore believe that the stock of Illinois Tool Works is overvalued.
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target (full value) price which in this case is $125.60. Therefore we see a good entry point into Illinois Tool Works stock at $113 or below.
Since the stock of Illinois Tool Works is trading at well above our suggested entry point into the group's stock we rate the stock of Illinois Tool Works as a SELL.
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target (full value) price which in this case is $125.60. Therefore we see a good entry point into Illinois Tool Works stock at $113 or below.
Since the stock of Illinois Tool Works is trading at well above our suggested entry point into the group's stock we rate the stock of Illinois Tool Works as a SELL.
Next earnings release of Illinois Tool Works
It is expected that Illinois Tool Works will release their 1st quarter 2020 earnings report in late April 2020