Sterne Agee: Illinios Tool Works Uses Analyst Day To Discuss Growth Potential

Illinios Tool Works

used its analyst day to discuss the long-term organic growth potential through innovation and emerging markets penetration. BRIC contribution is targeted to grow to 15% of revenues by 2015 from 8% currently. The initial outlook for 2011 includes 5 – 6% organic revenue growth and 5 – 7% revenue growth through acquisitions, above the 13 – 14% revenue growth expected in FY2010. We estimate the pipeline for acquired revenues for FY2011 could be $900M - $1B, significantly above the targeted $500M - $700M for FY2010. ITW remains focused on maintaining Debt/Cap in the 20 – 30% range and ROIC of 16 – 17%. Acquisitions remain the preferred use of FCF followed by dividend payments. If high multiples and competition impede growth through acquisition, ITW will consider further share repurchases. ITW expects the momentum of market growth to begin to slow after year 2 in the recovery, and through investment and penetration gains in the Emerging Markets, the company expects a re-acceleration of revenue growth through the latter half of the up cycle into 2015. Sterne has a Neutral rating and $55 PT on ITW ITW closed Friday at $50.41