Seaport Global Ups Illinois Tool Works To $125 Target

Illinois Tool Works Inc. ITW reported its 1Q results ahead of expectations. Seaport Global’s Walt Liptak maintained a Buy rating for the company, while raising the price target from $105 to $125. The analyst expressed optimism regarding the company’s margin expansion potential.

A Good Start To 2016

Analyst Walt Liptak mentioned that Illinois Tool Works’ Q1 beat was due to better-than-expected margin expansion at the Auto, Construction and Specialty Products segments. Margin expansion at the consumer facing segments enabled the company to record an operating margin of 22.1 percent, up 120 bps y/y.

Liptak added, however, that margin expansion at the consumer facing segments were offset by margin pressure in the industrial-facing segments. He noted, “The Welding segment continues to experience volume declines due to O&G exposure. Welding margins will be under pressure again in Q2:16 due to a special restructuring action that will lower EPS by ~$0.01.”

Looking Ahead

Illinois Tool Works’ 2016-2017 growth outlook “continues to look positive,” driven by the Enterprise initiatives and the 80/20 operational strategy, the analyst commented. These self-help activities have allowed the company to generate consistent margin expansion and cash flows.

Management projected 100 bps of margin expansion in 2016, without sales growth. The company expects to generate 1-3 percent organic revenue growth in 2016, mainly owning to strength in Construction, Automotive and Food Equipment.

The EPS estimate for 2016 has been raised from $5.45 to $5.50.