Linked here is a PDF copy of my detailed analysis of Illinois Tool Works Inc (ITW). Below are some highlights from the above linked analysis:
Company Description: Illinois Tool Works Inc. is a diversified manufacturer operates a portfolio of about 750 industrial and consumer businesses located throughout the world.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to >MMA
Other: ITW is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. ITW has a strong balance sheet with a relatively low debt and generates high levels of free cash flow relative to net income. Looking ahead, ITW should continue to grow EPS via acquisitions and share repurchases. Risks would include a downturn in industrial activity and/or capital spending, integration of acquisitions and continued escalation of raw material costs..
Conclusion: ITW earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a net total of three Stars. This quantitatively ranks ITW as a 3 Star-Hold.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $47.29 before ITW's NPV MMA Diff. decreases to the $3,000 NPV MMA Diff. that I like to see. At that price ITW would yield 2.43%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I'm looking for, the calculated rate is 10.4%. This dividend growth rate is slightly below the 11.8% used in this analysis.
All things considered, I would be very comfortable initiating a position in ITW below $47.29.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I had no position in ITW (0.0% of my Income Portfolio) .
What are your thoughts on ITW?