ITW - Illinois Tool Works Looks Priced Beyond Perfection

2023-03-08 04:11:40 ET

Summary

• Illinois Tool Works has continued to execute well on margins, but growth looks more limited given a lack of leverage to attractive long-term growth markets.
• Translating margin improvements into free cash flow hasn't been a consistent process, though I do expect progress toward 20% FCF margins over the next five years.
• Companies have gotten more cautious on auto volume predictions, and ITW has exposure to weakening construction and short-cycle industrial markets.
• Mid-single-digit FCF growth isn't enough to support an attractive return from here, and the shares already trade with a meaningful embedded quality premium.

For further details see: