Here's Why You Should Hold on to Illinois Tool (ITW) Stock
Illinois Tool Works ITW is gaining from strength across the Automotive OEM (Original Equipment Manufacturer) and Food Equipment segments despite adversities from supply-chain disruptions and foreign exchange headwinds.
What’s Aiding ITW?
Strong organic growth in North America and Europe is boosting revenues in the Automotive OEM segment. The Food Equipment unit is being aided by growth across both North America and International operations and strength across institutional end markets. Strength in the capital equipment business bodes well for the Test & Measurement and Electronics segment. Solid industrial and oil and gas businesses bode well for the Welding segment.
Despite macroeconomic uncertainties, Illinois Tool’s bullish guidance for 2023 holds promise. The company expects organic growth of 3-5% for the current year. For 2023, the company expects revenues to increase 2-4% year over year. ITW raised its earnings guidance to $9.45-$9.85 per share, compared with $9.40-$9.80 per share anticipated earlier.
Strong free cash flow generation capacity supports the company’s shareholder-friendly activities. Free cash flow of $615 million surged more than 100% year over year in the first quarter. The conversion rate to net income was 86%. Free cash flow is expected to be more than 100% of net income in 2023.
Illinois Tool’s efforts to reward its shareholders through share repurchases are noteworthy. In the first quarter of 2023, the company bought back shares worth $375 million. ITW hiked its dividend by 7% in August 2022.
In light of the above-mentioned positives, we believe, investors should retain ITW stock for now, as suggested by its current Zacks Rank #3 (Hold). Shares of the company have gained 10.1% in the year-to-date period, outperforming the industry’s 9.6% growth.
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Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
Alamo Group Inc. ALG currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks.
ALG delivered a trailing four-quarter earnings surprise of 17.7%, on average. In the past 60 days, estimates for Alamo’s 2023 earnings have increased 12.7%. The stock has increased 26.3% in the year-to-date period.
Axon Enterprise AXON sports a Zacks Rank of 1 at present. The company has a trailing four-quarter earnings surprise of 44.4%, on average.
In the past 60 days, estimates for Axon’s 2023 earnings have increased 12.6%. The stock has rallied 13.8% in the year-to-date period.
A. O. Smith Corporation AOS presently carries a Zacks Rank #2 (Buy). AOS’ earnings surprise in the last four quarters was 8%, on average.
In the past 60 days, estimates for A. O. Smith’s 2023 earnings have increased 0.6%. The stock has gained 23.3% in the year-to-date period.
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Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report
A. O. Smith Corporation (AOS) : Free Stock Analysis Report
Alamo Group, Inc. (ALG) : Free Stock Analysis Report
Axon Enterprise, Inc (AXON) : Free Stock Analysis Report
