Illinois Tool Works Inc. ITW is poised to gain from strength in the Automotive OEM (Original Equipment Manufacturer) segment, stable underlying demand and improving supply chains despite softness in the semiconductor end market and foreign currency woes.
What’s Aiding ITW?
Business Strength: Illinois Tool is benefiting from stable underlying demand and improving supply chains. Strong momentum in the EV markets, customer mix and product line simplification activities are boosting revenues in the Automotive OEM segment. Also, its operating margin of 19.8% increased 370 basis points, driven by benefits from the company’s enterprise initiatives and favorable price/cost mix.
The Specialty Products unit is being aided by increased equipment sales, driven by higher demand in Europe and North America. Also, strong momentum in the ground support equipment and consumer packaging businesses, and increasing demand in the appliance business bode well. Revenues from the segment jumped 3.4% in the first quarter.
Enterprise Initiatives: The company’s focus on cost management and enterprise initiatives are supporting its margin performance. For instance, the company’s cost of sales decreased 8.4% year over year in the first quarter due to lower input costs. Also, in the same period, the operating margin of 28.4% increased 420 basis points as enterprise initiatives contributed 140 basis points. The company expects the operating margin to be in the range of 26–27% for 2024 compared with 25.1% reported in 2023. Enterprise initiatives are expected to contribute 140 basis points to the operating margin in 2024.
Rewards to Shareholders: Illinois Tool remains committed to rewarding its shareholders substantially through dividend payments and share buybacks. In the first three months of 2024, the company paid dividends worth $419 million and bought back common stock for approximately $375 million. In August 2023, the company hiked its dividend by 7% to $1.40 per share. Also in the same month, the company’s board approved a new $5 billion buyback program. In 2024, Illinois Tool expects to repurchase approximately $1.5 billion worth of shares. Also, strong free cash flow generation capacity supports the company’s shareholder-friendly activities. Free cash flow is expected to be more than 100% of net income in 2024.
In light of the above-mentioned positives, we believe, investors should retain ITW stock for now. The company currently carries a Zacks Rank #3 (Hold).
Illinois Tool Works Inc. Price and Consensus
Illinois Tool Works Inc. price-consensus-chart | Illinois Tool Works Inc. Quote
Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter average earnings surprise of 8.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has increased 1.2% in the past 60 days. The stock has gained 53.9% in the past year.
Belden Inc. BDC currently flaunts a Zacks Rank of 1. It has a trailing four-quarter earnings surprise of 14.7%, on average.
BDC’s earnings estimates have increased 8.3% for 2024 in the past 60 days. Shares of Belden have risen 12.6% in the past year.
Greif, Inc. GEF presently carries a Zacks Rank #2 (Buy). GEF delivered a trailing four-quarter earnings surprise of 150.6%, on average.
GEF’s earnings estimates have increased 9% for fiscal 2024 in the past 60 days. Its shares have risen 3.8% in the past year.
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Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report
Applied Industrial Technologies, Inc. (AIT) : Free Stock Analysis Report
Belden Inc (BDC) : Free Stock Analysis Report
Greif, Inc. (GEF) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
