Illinois Tools Works Case Study
Illinois Tool Works: A Great Play for Defensive Investors
Extensive global footprints and investments in key growth markets allowed Illinois Tool Works to excel in its industry.
The company’s margin expansion strategies are working and allowing it to turn respectable revenue growth into big profits.
It’s a perfect play for long-term defensive Investors.
From deep-sea oil rigs and bridges, to aerospace technology, cars, mobile devices, healthcare, wind turbines and space technology, Illinois Tool Works (ITW) products and solutions are a global phenomenon. With a more than 100 years of success to look back on, ITW seems like a solid play for long-term investors, considering its higher than industry average returns and its competitive position …show more content…
Margin Growth is a Bonus
The margin is always very important for the company and its shareholders, while this financial metric also suggests the effective management of the company. In ITW’s case, along with allocating investments in high growth high margin products (80/20 management process), enterprise strategies and strategic sourcing have allowed it to turn mid-single digit revenue growth into big profits.
And don’t forget the effectiveness of the share buyback, which enhances earnings per share. The company has spent almost $12 billion in share buybacks over the last five years.
Let’s get back to the topic of margin expansion. Since 2012, its operating margin has improved from 15.9% to 22.5%. After-tax return on invested capital also improved from 14.5% to 22.1%. The company plans to generate an operating margin of 25% next year, which looks achievable considering its portfolio management and cost efficiencies. Initiatives like strategic sourcing support the company strategy of improving margins. For instance, ITW generated $345 million in procurement cost savings across the company in the last three …show more content…
Unless some unforeseen event happens that has a negative impact on global environment, I do not expect a notable correction in ITW’s stock price. On the flip side, the mid-single digit revenue and a double digit earnings growth will definitely support its share price momentum.
The company’s dividend growth potential is yet another factor in ITW’s share price. Last year in August, ITW increased their quarterly dividend by 18% to $0.65 per share, and the company is set-up to make a similar dividend growth this month. Its free cash generation potential is almost 100% to net income. With a strong growth in earnings, its free cash flows will also increase at a similar rate. This will create a room for dividend growth. Overall, I suggest long-term defensive investors add a robust player like Illinois Tool Works to their portfolio. Their share price appreciation, as well as their dividend growth, are both safe
Extensive global footprints and investments in key growth markets allowed Illinois Tool Works to excel in its industry.
The company’s margin expansion strategies are working and allowing it to turn respectable revenue growth into big profits.
It’s a perfect play for long-term defensive Investors.
From deep-sea oil rigs and bridges, to aerospace technology, cars, mobile devices, healthcare, wind turbines and space technology, Illinois Tool Works (ITW) products and solutions are a global phenomenon. With a more than 100 years of success to look back on, ITW seems like a solid play for long-term investors, considering its higher than industry average returns and its competitive position …show more content…
Margin Growth is a Bonus
The margin is always very important for the company and its shareholders, while this financial metric also suggests the effective management of the company. In ITW’s case, along with allocating investments in high growth high margin products (80/20 management process), enterprise strategies and strategic sourcing have allowed it to turn mid-single digit revenue growth into big profits.
And don’t forget the effectiveness of the share buyback, which enhances earnings per share. The company has spent almost $12 billion in share buybacks over the last five years.
Let’s get back to the topic of margin expansion. Since 2012, its operating margin has improved from 15.9% to 22.5%. After-tax return on invested capital also improved from 14.5% to 22.1%. The company plans to generate an operating margin of 25% next year, which looks achievable considering its portfolio management and cost efficiencies. Initiatives like strategic sourcing support the company strategy of improving margins. For instance, ITW generated $345 million in procurement cost savings across the company in the last three …show more content…
Unless some unforeseen event happens that has a negative impact on global environment, I do not expect a notable correction in ITW’s stock price. On the flip side, the mid-single digit revenue and a double digit earnings growth will definitely support its share price momentum.
The company’s dividend growth potential is yet another factor in ITW’s share price. Last year in August, ITW increased their quarterly dividend by 18% to $0.65 per share, and the company is set-up to make a similar dividend growth this month. Its free cash generation potential is almost 100% to net income. With a strong growth in earnings, its free cash flows will also increase at a similar rate. This will create a room for dividend growth. Overall, I suggest long-term defensive investors add a robust player like Illinois Tool Works to their portfolio. Their share price appreciation, as well as their dividend growth, are both safe