Market Overview

Illinois Tool Works, 'The Gold Standard,' Initiated With A Buy At BofA

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Illinois Tool Works, 'The Gold Standard,' Initiated With A Buy At BofA

Illinois Tool Works Inc. (NYSE: ITW) hosted its 2017 investors day Dec. 1 and projected 8-10 percent earnings per share growth each year.

The Analyst

Bank of America Merrill Lynch's Ross Gilardi initiated  coverage of Illinois Tool Works with a Buy and $190 price target. 

The Thesis

The price target is based on 24.5 times 2019 price-to-earnings, implying a 2-percent dividend yield, Gilardi said. (See the analyst's track record here.)

BofA projects the organic revenue growth to accelerate to 3-5 percent annually versus 2017 growth of 2.5 percent and flat growth in 2015-2016. The valuation has shown strong historical correlation with return on invested capital, or ROIC, and operating margin, Gilardi said. 

Gilardi forecasts a ROIC increase of 560 bp to 31.1 percent by 2020 and said he expects to see a higher PE and EV/EBITDA multiple as a result. Tax reform could decrease Illinois Tool Works' rate from 29 percent to the low 20-percent range, translating to $0.50 to $0.60 earnings per share increase, the analyst said. 

The Price Action

Illinois Tool Works was down less than 1 percent at $165.14 Monday. It has gained around 35 percent year to date.

Related Link:

Benzinga's Top Upgrades, Downgrades For December 11, 2017

Latest Ratings for ITW

DateFirmActionFromTo
Feb 2020Morgan StanleyMaintainsUnderweight
Jan 2020CFRAMaintainsSell
Jan 2020UBSMaintainsNeutral

View More Analyst Ratings for ITW
View the Latest Analyst Ratings

Posted-In: Bank of America Merrill Lynch Ross GilardiAnalyst Color Price Target Initiation Analyst Ratings Best of Benzinga

 

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